3 Main Factors Home Lenders Consider

Applying for a mortgage is not something people do every day, so it's natural to have questions. There are several factors that help determine a loan decision, and there are strategies you can follow to help position yourself for the best loan at the best rates.

Credit

Your credit score is a critical factor for lenders making a loan decision. They will pull your credit report to learn more about your credit history and credit score.

A credit report shows how well an applicant has repaid any loan or credit obligation. Usually lenders look at the most recent pay history and look for debts with a high balance. While score is important and will most likely have an impact on the interest rate offered, the detailed pay history plays a significant role in whether an applicant is approved or declined.

This doesn't mean you will be denied a home loan if you have a blemish on your credit score. Lenders consider many other factors. At Vanderbilt, customers are more than just a credit score and our team members will provide the financing program that best fits their situation.

Income and Debts

Determining the ability to repay debt on time each month is important to a lender when making a loan decision. A debt-to-income ratio, or DTI, is one of the tools lenders use to determine your ability to pay. You calculate two things to figure out the percent: monthly income and existing monthly credit expenses.

Lenders typically use verified gross monthly income, your pay before taxes, when determining an ability to repay. Gross monthly income includes a paycheck from an employer, plus any money you may receive in government aid, child support or pensions.

After totaling gross income, the lender will determine the amount of debt the applicant pays monthly. Typically, lenders use a credit report to identify the applicant’s debts. Some examples include car payments, student loans and credit card balances.

Employment

Employment is another important factor that goes into a loan decision. Lenders will look at the type and length of employment. If you're self-employed, you will need to prove steady income over a two-year period.

Consistent and non-temporary employment are favorable by most lenders. This means being regularly employed for two or more years. Consistent employment shows a lender income stability, which is an indicator of the applicant's ability to repay the loan.

The lender learns more about employment history by requesting a Verification of Employment from your employer and will consider the information provided in the loan decision.

Next Steps

Understanding these three factors and knowing where your personal finances fit within them is important when applying for a home loan. While there are other things lenders consider, making sure you are financially fit in these three areas is a great start to your home buying journey.

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