How Do Mortgage Lenders Evaluate Loans?

Applying for a mortgage loan doesn't guarantee that you get one. The lender will give you the application, and you must complete it. However, the lender's work doesn't begin until they receive it. Once you give them the application, they'll begin evaluating your loan. How do they complete this process? You'll need to learn this if you're ready to apply for a mortgage.

Examine your job and income

The lender might begin the process by examining your job and income. They'll want to know how long you've worked in the same industry and had the same job. They may have requirements relating to this factor, such as two years at the same job. The lender needs to see your income to determine if you can repay the loan. You might need to show the lender your pay stubs, 1099s, and tax returns to prove your income.

Debt-to-income (DTI) ratio

As the lender examines your income, they'll also compare it to your debts. Lenders use a ratio to do this, called DTI. This ratio helps a lender tell if you can repay the money you borrow based on your current debt load. Lenders use criteria to determine if a borrower meets the requirements. Before applying for the loan, work on this factor. You can improve your DTI by increasing your income and decreasing your monthly debt payments.

Credit analysis

Next, the lender moves on to your credit. Lenders perform a credit analysis to rate your creditworthiness. Creditworthiness tells the lender if you're trustworthy. For example, will you repay the money if they approve the loan? They don't know this answer when examining your application, but they can guess by examining your creditworthiness. You're likely creditworthy if you have high credit, but the standards vary by lender. A lender will pull your credit file to complete this step.

Perform calculations

Finally, lenders perform calculations to determine how much to loan a person. If the lender determines you meet all the necessary criteria for the loan, they'll calculate how much money to give you through the loan. You can borrow up to the maximum amount, but you don't have to borrow all of it. Your payments will be less if you borrow less.

Talk to a lender

Mortgage lenders are in the business of issuing loans. Therefore, you should talk to a lender if you need a loan. You can expect them to use these steps when evaluating your application.

Contact a local company to learn more, like Clift Enterprises Clift Mortgage