Loan Approval Factors Considered by Lenders

 

 

If 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.