4 Common Factors that Affect Your Mortgage Loan Decision

If you are applying for a mortgage, there are several factors that will go into the loan decision. The lender is going to look at many things to determine whether you are a good credit risk for a mortgage. Here are a few common factors that affect your mortgage loan decision.

1. Credit Score

Your credit score is perhaps the most important factor in determining whether or not you will be approved for a loan. Your credit score is a number that is compiled by the credit bureaus based upon your credit history. A lot of factors go into your credit score and therefore, it provides a good compilation for lenders to look at. It takes into consideration your payment history, the amount of debt that you have, and whether you have had any judgments against you. Each lender will have their own credit score guidelines for approval of mortgages. Usually if your score is below 660, you are considered a high-risk borrower. In that case, they may refer you to a subprime lender for your mortgage needs. Your credit score will also affect the interest rate that they are willing to give you for the loan.

2. Income

Another huge factor in whether or not you get approved for a mortgage loan is the level of income that you have. The more money that you make, the better off your mortgage loan approval chances will be. You will be required to provide documentation of your income in the form of W-2's and recent pay stubs. They will want information about your employer and they will want to know everything about your job status. They will most likely call your employer to verify that you indeed work for them. The lender wants to know whether you make enough money to make your mortgage payment every single month. 

3. Debt

Your debt situation is another very important thing for them to consider. While your credit score will also be affected by your debt, the lender will want to look at your specific debt accounts. They will want to know that you do not have too high of an amount of debt to qualify for their loan standards. Each lender has their own guidelines that recommend how much debt is acceptable. They will usually combine the income information with your debt information to form a debt-to-income ratio. Debt-to-income ratios provide them with an easy way to compare lenders financial situations. If you have too much debt, you will not meet their debt-to-income ratio.

4. Prior Living Arrangements

The lender will also take a special interest in your prior living arrangements. They will want to know whether you have had a mortgage before or if you rented. If you were a renter, they will want to know the contact information for your previous landlord. If you had a mortgage, they will look at your payment history closely. They want to know whether you lived up to your end of the deal on your first mortgage before they offer you a second one.