When a mortgage provider turns down your application, it can abruptly dampen the joy of finding your dream house. What do lenders look for when approving a loan? Knowing the key factors can make all the difference in securing the financing you need.
Your financial profile matters
Lenders will scrutinize several aspects of your financial health:
- Credit score: The better your score, the more favorable the interest rates and loan terms you can secure.
- Income: Lenders want reassurance that you can afford monthly payments.
- Debt-to-income ratio: A lower DTI indicates you have more income available to cover new debt.
- Employment history: Stable employment is a positive sign for lenders.
- Down payment: A larger amount you put down upfront often results in a lower interest rate.
The type of property you want to buy also affects your mortgage approval. Lenders may have different requirements for single-family homes, condos or multi-unit properties. They will also consider the property’s value and condition through an appraisal.
Your chosen mortgage program impacts the approval criteria, too. Conventional loans, FHA loans, VA loans and USDA loans each have unique requirements.
Mortgage approvals are also affected by the current economic and housing market conditions. During economic downturns, lenders might tighten their criteria, making it harder to secure a mortgage.
Obtaining legal advice is crucial
Understanding these factors can empower your mortgage application process. But remember, each lender may weigh these factors differently. What one lender approves, another might deny.
A Massachusetts real estate attorney can also review your purchase agreement and mortgage documents, identify potential risks and negotiate on your behalf. Do not hesitate to seek their experience and legal guidance.