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Key takeaway

The top two numbers that will help guide you in figuring out what home price you may be able to afford are your down payment amount and your monthly payment amount. Buying a home is one of the biggest financial decisions you’ll make, and you’ll want to stay within your budget — both for making decisions now and for having confidence for the future.

When shopping for a home loan, different situations call for different types of loans. Understanding your loan options can help to give you choices as to how to finance your home purchase.

Similar to other financial products, various types of loans have different features. Some offer options for a lower down payment, for example. Mortgage lenders will look at a variety of factors to determine whether you meet certain financial or personal requirements to qualify for these types of loans.

One way to potentially have more mortgage choices is to improve your borrowing power by learning what lenders evaluate when reviewing your loan application.

Your home mortgage consultant can help you determine your borrowing needs and assess which loan products align with your homebuying goals.

This short video explains the factors your lender will consider when you apply for a home loan. You can learn more about how to choose a lender and loan type by taking our short quiz.

Determining your price range

Video Transcript

[Theme music]

[your Home Matters<sup>SM</sup> Minute logo and Wells Fargo logo on screen]

[Video title text: Determining your price range]

One of the first questions many homebuyers ask is, “How much can I afford?”

Buying a home is one of the biggest financial decisions you’ll make, and you will want to stay within your budget.

[Icon of house with a dollar sign inside it; title says Factors affecting your home price range; bulleted list animates onto screen:

  • Size of down payment
  • Loan amount
  • Loan options
  • Current debt
  • Credit history
  • Property value]

Many factors affect the price range you should consider, including the size of your down payment and the loan amount you may qualify for, the types of loan options available to you, your current debts and credit history, and the property value of the home you are considering.

Your lender wants you to be a successful homeowner, and so to assess whether you qualify for a mortgage large enough for the home you want, he or she will consider your entire financial picture.

[Icon of person and wallet and dollar bills; text says Income; bulleted list:

  • Job: Primary, secondary, or part time
  • Overtime, bonuses, commissions
  • Retirement
  • Veteran’s benefits
  • Disability payments
  • Alimony
  • Child support
  • Rental or investment income]

First, lenders want to know that you have a source of income to make monthly mortgage payments. Income can come from primary, secondary, and part-time jobs, as well as overtime, bonuses, and commissions.

You may use other sources of income if you want them considered for payment — including retirement or veteran’s benefits, disability payments, alimony, child support, and rental or investment income — provided they can be verified as stable, reliable, and likely to continue for at least three years.

[Icon of person with title Current debts and credit history; pie chart with 36% label in unshaded section; bulleted list:

  • Current debts
  • Payment habits
  • Credit history
  • Credit score]

Your lender will also examine your current debts, payment habits, credit history, and credit score. They want to confirm that you pay your bills, loans, credit cards, and other debt on time and that you don’t have excessive levels of outstanding debt.

[Text on screen reads www.AnnualCreditReport.com]

It’s a good idea to check your credit history and correct any problems before applying. You can get a free credit report annually at www.annualcreditreport.com.

[Icons of person and dollar bills with headline Assets and available funds; bulleted list says:

  • Savings account
  • Certificate of deposit (CD)
  • Investments
  • Retirement funds
  • Gift from a relative, friend, employer, or not-for-profit organization
  • Additional funds]

Your lender will also review your assets and available funds to see if you have enough for a down payment and closing costs.

You may use funds from a savings account, certificate of deposit, investments, or retirement fund.

In some cases, you may be able to use a gift from a relative, friend, employer, or not-for-profit organization.

In many cases, you will also have to demonstrate that you have additional funds in your accounts to cover several months of mortgage, tax, and insurance payments.

[Icons of person and a house with headline The property; bulleted list that says:

  • Lender looks at property
  • Verifies it is worth the purchase price]

And finally, your lender will look at the property itself to verify that it’s worth the purchase price.

[Theme music with Wells Fargo logo]

[Text on screen: Wells Fargo Home Mortgage is a division of Wells Fargo Bank, N.A.
© 2014 Wells Fargo Bank, N.A. All rights reserved. NMLSR ID 399801. Equal Housing Lender.]

LRC-1019

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