Credit Scores and Numbers Mortgage Lenders Worry About Most with Loans

Not all loan applications are worthy of a mortgage lenders’ approval. Homebuyers must submit a long list of information before getting approved for a mortgage loan, such as a complete list of credit history, monthly income, other savings or investments, and debts.

What are the most important numbers worthy of mortgage lender approval?

Before buying a home by applying for a loan, a consumer must provide substantial evidence they are worthy of approval by the mortgage lender. It is a lender’s job to run the necessary credit reports and investigate debt-to-income ratio checks to get a complete profile of the borrower before setting loan interest rates and monthly payment amounts.

What are the credit scores lenders use to approve a mortgage?

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6 Important Numbers that Could Affect Mortgage Lender Approval

1. Excellent Credit Score

Contrary to popular belief, a credit score is not really the most important factor when getting approved on a mortgage loan. In fact, the consumer’s credit score has the greatest impact on loan interest rates, but it might not necessarily help a person get a larger loan. The loan amount has more to do with income and open debts. In order to determine if a consumer is worthy of mortgage lender approval, the base minimum credit score is around 620, while a score of usually 740 or higher will qualify a borrower for the best interest rates offered depending on the financial institution.

2. Debt-to-Income Ratio

Rather than using credit score as the main figure to set the appropriate value for a home loan, the consumer’s debt-to-income ratio must be determined. The debt-to-income ratio is used to assess monthly income amounts as well as any outstanding debts that may pose as risks to repayment of a mortgage loan. The less debt held by a consumer, the better this looks in the eyes of lenders. Therefore, it’s best that a consumer’s debt to income ratio is minimal, and frequent job changes do not show up when reviewing income histories.

After adding up all debts and dividing this number by total income, the debt-to-income ratio should be no more than 43 percent for the best outcome. Use this Debt-to-Income Ratio Calculator by Bankrate to determine the percentage of income to debts.

3. Twenty Percent Down Payment

Along with the usual figures, most mortgage lenders expect borrowers to invest in a down payment. The higher the down payment, the better this will be for a consumer’s loan conditions, and the more a person spends on the down payment, the less interest and monthly payments. Most lenders expect to see a 20 percent down payment (of total cost of home), but this is not always necessary to get approved.

4. Secure Savings

In addition to income, having a savings or bonds to back the worth of a loan can only work to the consumer’s advantage. Any additional money amounts held in savings accounts or bonds help indicate that a borrower is worthy of mortgage lender approval.

5. High FICO Score

A credit score is not the same thing as a FICO score. Mortgage lenders use FICO Scores when issuing mortgage loans, and these are determined using a completely different formula than those to determine your credit score such as current debts and payment histories.

6. No Recent Credit Applications

The last number that mortgage lenders like to see on your application is zero recent credit applications. The number of requests you have made to open a line of credit in the recent past is crucial to your loan application approval.

SOURCES:

6 Credit Report Items that Scare Lenders

What Do Mortgage Lenders Worry About Most? Not Your Credit Score

Comparing FICO and Other Credit Scores