Not everyone applying for a home loan will get the thumbs up from the bank. Every home mortgage lender in Seattle, for example, has a set of criteria that borrowers must satisfy to qualify for a loan. And mind you, such criteria are not exactly easy to hurdle, especially if you have a major problem with any of them.
Mortgage lenders perform such checks to determine the capacity of each borrower to pay the monthly loan dues. This is quite understandable since mortgage companies are taking a huge risk with each loan that they approve. So, what exactly are these criteria that borrowers must satisfy to have their loan applications given the green light?
Here are five things mortgage lenders look for in a borrower:
Credit history/score
These are almost always among the top considerations of all lending institutions, not just mortgage lenders. Your credit history can make or break your home loan application as it is a verifiable record of your past credits and how well you have fulfilled your obligation to pay your past creditors. Meanwhile, your credit score is another major consideration that the mortgage lender will most likely look at to determine whether or not you’re a great candidate for the loan. Different creditors have their threshold for the credit scores that are acceptable to them but generally, the higher the credit score, the better chances of the loan application being approved.
Debt to income ratio
The debt to income ratio is yet another essential factor that your mortgage lender will look over when deciding on your loan application. This ratio is simply the correlation between all your existing loans or credits vis a vis your actual income. By having a low debt to income ratio, the lender will be more inclined to grant your loan since you have the financial capacity to pay off.
Employment history
Some mortgage companies will also check whether or not a home loan applicant stays long in one job or if the applicant tends to job-hop; that is, move from one job to another in quick succession. Having a great employment history will be a key factor in having your mortgage loan approved so you better have a stable job before filing your application.
Down payment amount
Lenders would be more inclined to approve your loan if you can shell out a considerable amount as a down payment for the home that you wish to buy. Just like in credit scores, mortgage lenders also have their own rules when it comes to the amount that borrowers have to pay as a down payment. Some lenders require at least a 5% down payment while others are willing to go as low as 3.5%. But if you can pay a higher amount, then that would increase your chances of getting approved for a mortgage loan.
Capital
In most cases, lenders would be willing to approve loan applications in which the borrower only has employment as the source for repaying the loan. However, some mortgage lenders want to reduce their risks by asking borrowers for capital, which could include investments and savings. Such capital could serve as a lifeline for the borrower should he or she suddenly lose employment.
Just make sure you’re only securing your home loan from a reputable mortgage lender. This way, you can be sure to have the lowest-possible repayment scheme and the highest-possible loan amount
