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Need a mortgage? Here are three things your lender will review...

Home BlogNeed a mortgage? Here are three things your lender will review...

Key takeaways

  • Monitor your credit on a regular basis.
  • Maintain a steady income to establish a strong employment history.
  • Be conscious of your overall assets and collateral.

Wouldn’t it be great if buying a home would be as easy as going to a grocery store, picking your home from the shelf and paying for it in a straightforward transaction at the register?

Unfortunately, most of us don’t have a spare large amount of cash in our account to make the purchase that simple. That’s where a mortgage comes in: You borrow the extra money that you need to buy your chosen home, agreeing to pay it back in the coming years.

To get your mortgage approved, and get the best interest rate, it’s important to understand how lenders analyze your financial situation.  By knowing what lenders look for, you can make better long-term financial decisions that help get the loans you need.

Here are some key things lenders pay attention to.

Credit report

Your credit report gives the lender a view of your overall credit history, showing them other lenders who have given you loans and credit, your number of credit accounts, your payment history and your current debt.

In addition, your credit report provides the lender your credit score. For most lenders, the higher the score, the lower the risk. So, it’s important to build a positive credit report and high credit score by keeping your debt level reasonably low, making payments on time, limiting your number of credit accounts and limiting your number of loan applications.

Income and employment

Lenders are evaluating if you have the ability to repay the loan and afford the mortgage, property tax, homeowners insurance or other related recurring fees like condo or homeowner association dues. As a result, most lenders want to know about your current job and income. They may also take a look at your employment history to see if it’s been consistent over time, and to feel confident that your current job is secure.

They’ll want proof of your income, and will often ask to review your latest tax return. In addition, they look at your debt to income ratio –the lower the ratio, the better chance for approval. Having a strong employment history and a solid income level significantly raise your potential for loan approvals.

Collateral and assets

A lender will also look at your assets and savings in evaluating your down payment, or cash contribution, toward the home you want to buy as well as your ability to repay the mortgage and ongoing related expenses. The lender will use the home as collateral for your mortgage loan; this reduces the lender’s risk as they can take the home from you should you no longer be able to make pay your mortgage payments. An appraisal will tell the lender the condition and value of the home you want to buy. The condition and value help in determining if you are paying an appropriate price and how much you will be able to borrow to buy the home.

Knowing what lenders look for gives you an advantage. It allows you to build your financial history and prepare information the lenders will need to evaluate your ability to pay back a loan.

MidWestOne Bank does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

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