Mortgage Guide

What does your lender consider to approve your loan?

Imagine if someone asked you for a $200,000 loan to buy a house. What would you want to know before handing over the money to them? Can that person afford to pay back the loan? Is the person responsible with money? These are the same types of questions loan underwriters ask when you apply for a loan. Underwriters approve or deny a mortgage loan application based on an evaluation of the property appraisal, your income and assets and your credit history.

  • The property appraisal. Your appraisal is done by an independent appraiser. The appraisal provides an estimate of the market value of the home you want to buy, based on similar homes sold in the neighborhood. The appraiser also inspects the property to evaluate its general condition and see if any repairs are needed to bring the property to its full value. Lenders generally lend you up to a certain percentage of the property value. The loan amount will be based on the lesser of the sales price or the appraisal amount.
  • Your income and assets. Your current earnings, along with any other available funds (like bank accounts, investments or gift funds) will help determine your ability to repay a loan.
  • Your credit history. Lenders base part of their decision on how you have handled your credit payments in the past. A report from the credit bureau shows the types of credit you’ve had, whether you’ve repaid promptly and how well you’ve managed the responsibilities of credit.

I is a good idea that you request a copy of your credit report before you apply for a mortgage. That way, if you detect potential credit concerns on your report, such as incorrect information, you’ll have enough time for the credit reporting agency to correct it.