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What Do Lenders Look For When Approving a Home Loan Application?

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Lenders can be pretty strict when it comes to approving a home loan application. They need to make sure that you can pay the loan according to the agreed terms. To do so, they must consider several factors.


To give you an idea, and help you prepare, here are some of the factors that lenders consider when approving your home loan application.


1. Your Credit


One of the first things lenders look at will be your credit score and history. Your credit score determines the types of mortgage loan for which you qualify, and your credit history allows lenders to determine how you handle borrowed money.


Lenders will not automatically deny your application if you have low credit scores. But if you want to increase your chances of approval, aim for a credit score of 700 or higher.


2. Your Debt-to-Income Ratio


The debt-to-income or DTI ratio is calculated by comparing the amount of money you earn versus the amount you owe.


Having debts is not necessarily a bad thing. But lenders use the DTI ratio to ensure that you don't take in more debts than you can handle.


Generally, borrowers are allowed up to a 43% DTI ratio. However, lenders prefer a lower than 36% ratio, where 28% of this goes to mortgage or rent payment.


3. Your Monthly Income and Employment


You don't necessarily need a high income to get approved for a home loan. Instead, lenders are more interested in knowing if you have an adequate and consistent monthly income. This is to make sure that you'll be able to keep up with the payments.


If you are employed, lenders will check your tax information for the past two years. If you are self-employed, they will check your gross income.


Unfortunately, those who work part-time or are just starting with their self-employment might have a harder time getting approved for a home loan than those with full-time employment.


4. Your Assets


Lenders will check your bank account statements to see if you have savings, cash reserves, or assets that can be easily turned into cash. These will serve as their assurance that you will still pay the loan even if there are financial setbacks such as a job loss.


5. Your Down Payment


Lenders will look at your down payment amount to determine how much money you need to borrow. If you put less than 20% down, you'll be required to pay the mortgage insurance.


Some mortgage programs, such as the USDA loan, allow a 0% or lower down payment. However, you'll have more options if you make a higher down payment.


Thinking of applying for a home loan but don't know where to start?


Ebenezer Mortgage Solutions is ready to help you. Talk to our qualified mortgage broker to find the best home loan offers to suit your needs. Call us today at (813) 284-4027.


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