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Key Factors Mortgage Lenders Consider When Approving Loans

Key Factors Mortgage Lenders Consider

When Approving Loans

This blog outlines key factors that lenders consider when approving loans, including credit score, income and employment stability, debt-to-income ratio, down payment size, property appraisal, assets and savings, as well as the type and terms of the loan. A higher credit score improves approval chances and interest rates, while stable income and a low debt-to-income ratio are also critical. Larger down payments reduce lender risk, and sufficient assets are necessary to cover closing costs and mortgage payments. 

 

1. Credit Score 

  • Higher scores (typically 620+) improve approval chances.
  • Affects the interest rate and loan terms.
  • Scores above 740 often qualify for the best rates. 
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2. Income and Employment

  • Lenders verify stable and sufficient income.
  • Employment history (usually 2+ years in the same field) is important.
  • Self-employed borrowers may need to provide additional documentation.

3. Debt-to-Income Ratio (DTI)

  • DTI= Total monthly debt payments ÷ Gross monthly income.
  • Most lenders prefer a DTI below 43% though some allow up to 50%.

4. Down Payment

  • A larger down payment reduces lender risk.
  • Conventional loans often require 5-20% down.
  • FHA loans may allow as little as 3.5% down.

5. Property Appraisal

  • The home must appraise for at least the purchase price.
  • If the appraisal is low, the buyer may need to cover the difference or renegotiate.

6. Assets and Savings

  • Lenders check for cash reserves to cover closing costs and a few months of mortgage payments.
  • Bank statements, investment accounts, and retirement funds may be reviewed.

7. Loan Type and Terms

  • Different loans (e.g., FHA, VA, conventional) have different requirements.
  • Fixed-rate vs. adjustable-rate loans also affect approval criteria.
 

Our team of Mortgage Lenders are here to help. If you have questions about the home-buying process or are ready to get started on the purchase of a new home, contact us today! 


Disclaimer

While we hope you will find this content helpful, it is meant to be just a starting point. Your next step should be to consult with a qualified, licensed professional who can offer guidance tailored to your specific situation. Nothing in this article, nor in any related materials, should be interpreted as financial or legal advice. Additionally, although we have made sincere efforts to ensure that the information provided was accurate at the time of preparation, we cannot guarantee its current accuracy.