What Makes a Good Mortgage Applicant

June 14, 2017

Lenders use specific criteria to determine whether applicants qualify for a mortgage and what the terms of the loan should be. The Motley Fool highlights several metrics lenders value the most when it comes to approving borrowers for a loan.

How does your client’s income compare to the amount they want to borrow?

Many lenders believe housing costs—which also include property taxes and homeowners insurance—should be less than 28 percent of a person’s income. Lenders may allow borrowers with less debt to take on larger mortgages.

What is your client’s debt load?

Many lenders consider the maximum debt-to-income ratio to be between 36 percent and 43 percent. Lenders expect total debts—which include the cost of the mortgage, other housing expenses, and unpaid debts—not to exceed that percentage. Otherwise, a borrower may not get approved for a loan.

Does your client have good credit?

Lenders will look at your client’s credit score to determine whether they’re a responsible borrower. People with credit scores higher than 740 often get the most favorable mortgage terms. A credit score below 620, on the other hand, could result in the denial of a mortgage. Some subprime lenders may be willing to lend to a borrower at a higher interest rate. But your clients might be better off taking steps to improve their credit and qualify for a more favorable loan, experts say.

What’s your client’s employment situation?

Borrowers who have been employed for only a short time at their most recent job or who have a history of changing jobs frequently may be a red flag for lenders. Many want to see two years of steady income on a borrower’s financial record.

Source: “The 5 Factors That Determine if You Can Get a Mortgage Loan,” The Motley Fool (June 4, 2017)