To Lend or Not? What Factors Lenders Consider

Before you apply for a mortgage loan it is important to be aware of what Lenders look at and why in order to make their lending decision. Here are some on the most common things that Mortgage Lenders look and reasons why:

Income Stability:

Mortgage Lenders will look at sources of income, the most common paperwork that is submitted by borrowers will be current (less than 30 days old) paystubs and last two years of W2 Statements. If self-employed then the last two years of business returns will also be required. Lenders want to see that there is stable income that is remaining at a constant level or increasing. They do not want to see decreasing levels of income or unstable income as this will raise doubts on how the borrower will be able to make required payments. Other sources of income will also be considered such as investment income, veteran’s benefits, disability benefits, alimony, rental income etc.


Lenders want to see liquid assets such as cash, money in CDs, investments that can be readily converted to cash – they want to see enough liquidity for at least two months of mortgage and housing payments (have more than 2 months’ worth is definitely a plus point!) in addition to down payment funds. Gift funds may be OK for some loan types e.g. FHA loans. Long term assets such as annuity and retirement funds may not be used to qualify borrower for a loan but shows Lender that borrower is stable and not of as a high a risk as he would be if he had very little assets.

Property Appraisal:

The property to be used as collateral must have an appraisal value of at least the purchase price if loan is being used to buy the property or if a refinance must show that there is enough equity in the property to be refinanced.

Credit Report:

As part of the loan application, the broker will pull a credit report on the borrower(s) on the application. The Credit Report gives a breakdown of the debt balances that the borrower has and whether they have gone through a bankruptcy, foreclosure or other detrimental event and also how good their repayment history is. The Lender can get a good idea about how good the borrower is at repaying debts and managing finances.

Other factors that a Lender will consider include:

Debt to Income Ratio – which compares the mortgage payment (principal, interest, taxes & insurance) plus any other debt payment against the gross monthly income. Different loan programs have different Debt to Income Ratio.

Housing Expense to Income Ratio – this ratio compare the mortgage payment (principal, interest, taxes & insurance) to the gross monthly income.

The above gives a generalized summary of the things that a Lender bases their decision on whether to lend or not on. It is thus a good idea to see how your specific financial situation fares with the above criteria.

For more information, contact out knowledgeable brokers at Loan People USA.


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