Both borrowers and lenders look at different things when determining whether they can purchase a property. Borrowers might consider the size of the home or its location, while lenders might consider more technical aspects regarding a borrower’s financial situation.
Lenders Look at Your Credit
A credit score is a number between 300–850 that shows a borrower’s creditworthiness. The higher the score the better when it comes to acquiring a home loan. Lenders will look at a potential borrower’s credit score for insights on debt management and payment timeliness. A borrower’s credit score is made up of several factors:
● Payment history
● Outstanding debt
● Length of credit history
● New accounts
● Types of credit used
Lenders consider these factors when assessing whether a borrower meets their financial obligations.
Lenders Look at Your Income and Debt
A borrower’s income is a key factor in determining whether they can afford to make mortgage payments. Lenders look for borrowers to make a stable and consistent income. Income also is a determining factor in the loan amount a lender will approve for a borrower.
Additionally, a borrower’s debt can be the difference between getting a mortgage or not. If a borrower is currently spending 75 percent of their annual income on debt, this can complicate the lending process and even keep a borrower from receiving a loan. As a general rule of thumb, keeping monthly expenses below 28 percent of your gross income and total debt payments below 36 percent of your gross monthly income can help when applying for a mortgage loan.
Lenders Look at the Property
Lenders consider the value of the property a borrower is looking to purchase when determining if a loan is approved or not. The loan amount should be relative to a property’s fair market value. Lenders are unlikely to approve a mortgage loan for more than the home appraised at.