Applying for the Mortgage: Lender Tips

Completing a mortgage application can be an intimidating task, especially if the borrower is uncertain of what information will be needed. Here are some key factors that lenders consider during the application process:

  • Credit Report. As a borrower, it is important to obtain credit reports from each of the three major credit bureaus, and examine them carefully. Incorrect information can cause higher rates, or keep the borrower from getting a mortgage altogether. It's estimated that over forty percent of all credit reports contain errors. Any discrepancies need to be corrected as quickly as possible.
  • Credit Standing. Carry low credit card balances, or pay them off, along with any other outstanding bills before applying for the mortgage.
  • Credit Accounts. The amount of a borrower's credit accounts can make a difference when applying for a mortgage. Avoid closing current accounts or applying for new ones, as this can make the lender suspicious.
  • Down Payments. The more money a borrower can afford to pay up front, the more likely they are to be approved. It also makes for a lower loan. Of course, borrowers with an excellent credit history are likely to be approved regardless of how much money they can afford to put down. For those with less than perfect credit, the amount of a down payment could make the difference between approval and rejection.
  • Income. Lenders look for steady sources of income, so avoid changing jobs or quitting right before submitting a mortgage application.
  • Interest Rates. Loans are not approved or denied based on interest rates, but they do help to determine monthly payments. Interest rates can also change while the loan application is being reviewed and processed by the lender. Therefore, if the borrower thinks the interest rates could rise, they may consider paying a "lock-in" fee in order to guarantee a favorable rate.
  • Available Funds. Along with a good down payment, borrowers should have funds set aside to cover closing costs, and (if necessary) pay for points. Avoid major purchases that may deplete any available funds prior to purchasing a new home.
  • Price Ranges. In order for a borrower to get an idea of how much they can afford monthly, it is important to figure out their debt-to-income ratio. Lenders are unlikely to approve the mortgage for a house the borrower cannot afford.
  • The Lender. Diligence is an asset, and every lending institution is different. Learn the reputation and history of the lender, and find out how many mortgage applications they approve, as well as how many they deny. If the lender denies twenty percent of borrowers who apply, it's not a good sign.