Loan Approval Factors Considered by Lenders

Posted by on Wednesday, October 19th, 2011 at 11:56am.

Atlanta Mortgage ApplicationIf you are nervous about the home loan process of today, you’re not alone. Most consumers understand that banks are decidedly more particular when it comes to lending money to home buyers, but not many people thoroughly understand all of the factors that go into the process of determining whether an individual is qualified to borrow money from the lender.

Here is a list of the main factors considered by lenders when determining home loan approval:

  • Your Debt Load – Many consumers of today carry a high burden of debt when compared to their income. Although you may have religiously made payments to all of your creditors in the past, the sheer amount of your debt could prevent you from obtaining a home loan. Lenders consider debt load because it often determines your ability to continue to handle your debt.

  • Your Payment History – In addition to your debt load (also called your debt-to-income ratio), lenders will look at your payment history. From rent payments to credit cards and utilities, lenders look at how well you manage every type of debt.

  • Your Past Credit Inquiries – If you want to apply for a home loan, avoid applying for any  other type of credit or loan around that time period.  Lenders do not want to see you applying for other types of credit because it indicates that you may be taking on more debt than you can handle.

  • Your Types of Credit –  The type of credit you take on is important in the eyes of a lender, as they want to see proof that you are able to manage a number of debts, including credit card debts, installment loans and the like.

  • Your Employment History – A strong employment history is incredibly important in the eyes of a lender because it shows financial stability. In other words, it is best to avoid changing jobs or changing occupations if you plan on applying for a home loan in the near future.

  • Your Cash on Hand -  A lender will determine your financial stability by the amount of money that you currently have in savings or have set aside for the purchase of the home. Your ability to save money indicates that you are likely conservative with your finances and are therefore a good credit risk.

6 Responses to "Loan Approval Factors Considered by Lenders"

John Ducey wrote: All these are important factors, that contribute to that magic credit score. Be very careful of the amount of credit inquiries. That alone can sink the ship.

Thanks for the great post!

Posted on Wednesday, November 2nd, 2011 at 9:29am.

Chris wrote: Seems like it's not really that much that the lenders look at, but believe me they REALLY look at those items when evaluating your credit and financial situation. This post is a great starting point for buyers looking to get financing.

Posted on Saturday, November 19th, 2011 at 8:38am.

James Vasquez wrote: Thanks Tina. I recently had a home buyer that had Excellent credit, but because he always cashed his paycheck at his employer's bank, then deposited the cash into his bank account, the lender denied him. He had wait 2 months to show a paper trail of exactly where the funds were coming from.

Posted on Wednesday, November 23rd, 2011 at 6:56am.

Bill Gassett wrote: Boy how things have changed in the world of mortgages! I can remember about ten years ago just about anyone who was breathing could get a loan. Things have changed for the better but maybe the belts have been tightened a bit too much at this point.

Posted on Wednesday, December 7th, 2011 at 8:12am.

Elena wrote: It's always better to have more information than less in my experience with trying to get a loan, thanks for sharing the checklist!

Posted on Monday, December 19th, 2011 at 7:20am.

Chris Adams wrote: Lenders would check everything to make sure they can get their money back. Thanks for sharing all this info Tina. All home buyers, specially those first time ones should read this.

Posted on Monday, October 8th, 2012 at 2:03am.

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