What Do Mortgage Lenders Look for in a Borrower?

One of the many stressful aspects of purchasing a home is finding a mortgage lender and being approved for a loan.

 

Not many homeowners, particularly first-time buyers, are aware of the factors that mortgage lenders take into consideration when determining whether or not to approve or deny a loan application.

 

Understanding what mortgage lenders look for in a potential borrower can make getting approved for a loan much easier.

 

 

Credit History

Just like when applying for an auto loan or an apartment, mortgage lenders will want to review your credit history to get a better idea of your financial responsibility.

 

Your credit score gives lenders an idea of how you manage your money and whether or not you have a history of poor spending habits. They can view how many credit card accounts you have, how often you make late payments, and other telling factors.

 

Your credit score could impact your interest rates, the amount that lenders are willing to offer, and whether or not you’re approved at all.

 

Before applying for a home loan, you should be sure to review your credit report. Websites like annualcreditreport.com let you review your credit report from the three major credit bureaus.

 

 

Employment History

Lenders will also often assess your current employment status and employment history to determine how much of a risk it would be to approve your application.

 

Mortgage providers need to be sure that borrowers can make regular payments. As such, you’ll have to provide proof of a stable income and that you don’t have a history of short-term employment.

 

If lenders see that you don’t currently have a job or you have a history of quitting or being fired after short periods of time, your chances of approval will drop significantly.

 

 

Debt

As mortgages can add hundreds of thousands of dollars to your existing debts, potential lenders may want to know what your current debt situation is. If you’re already drowning in debt, lenders aren’t likely to trust that you’ll be able to make your mortgage payments.

 

Lenders will evaluate your debt-to-income ratio. This ratio is the amount of your monthly debt payments compared to your monthly income. Each lender will have different requirements when it comes to your debt-to-income ratio, but, as you probably guessed, the lower the better.

 

In order to reduce your debt-to-income ratio, you should try to begin paying off your largest debts before submitting your mortgage application.

 

 

Down Payment

Lastly, one of the most important factors that lenders consider is the size of the down payment that you are able to make. The larger the down payment, the less money they will need to lend you. If you are able to make a sizeable down payment, you will have a much higher chance of being approved for your requested loan.

 

Of course, you shouldn’t attempt to make a larger down payment than you can actually afford just to increase your chances of approval, but you can be sure that lenders will favor borrowers who make larger down payments.

 

Understanding what mortgage lenders look for in a borrower before submitting your application is a great way to increase your chances of being approved for the amount of money that you need to purchase your dream home.

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