What Does A Mortgage Lender Consider When Making A Loan Decision?

By Eric Goodwill

A mortgage lender considers three different things when making a loan decision: income and assets, debts and credit history and property information.

Income and assets

After the completion of the application and first interview, a mortgage lender will verify the borrower’s income or employment. This is carried out by giving both past and current employers income forms to fill out. This helps a lender decide how much debt a borrower will be able to take on. The basic rule is someone can qualify for a loan that is up to twice as much as his income. Many times the amount of income earned is more important than exactly how it is earned.

Debt

Lenders typically see long-term debt as a monthly expense that extends more than a 10-month period. Debt should not be more than between 33 and 36 percent of the borrower’s gross income for the month.

Credit

Before a lender will provide credit, risk of not getting this money back needs to be evaluated. Lenders will look at four crucial areas of a borrower’s credit: past credit history, type of credit obtained, attitude toward credit and lapses in debt repayment or employment. By looking at these, lenders will know how well the borrower will handle the responsibility of having to repay the loan once the contract has been signed.

Property

A lender needs to know if the property that a borrower wants to buy is worth the price paid. The property is examined to make sure it is a suitable property in case of foreclosure. The acceptability of the property is established by an appraisal. The appraisal determines what the home is worth but also looks at the dynamics of the neighborhood. The location, physical security and government plans for the area are all checked by the appraiser.

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