Are you just starting your homeownership journey? Then, you might have many questions like how can I afford a home, how do mortgage loans work, and what do mortgage lenders look at when making decisions?

All these are valid questions as you start the process of looking for your dream home. And while getting a house marks such a joyous achievement, it requires a substantial sum of money most people do not actively have. This lack of immediate funds causes homeowners to rely on mortgage lenders to lend out money to potential homeowners so they can pay off their homes as they continue to live in them.

If you don’t know where to begin looking for a mortgage lender, start your search by depending on a reliable mortgage broker in Houston who can help make your home-buying process seamless. In the meantime, continue reading to explore what factors mortgage lenders account for when establishing home loan eligibility to best prepare you for the process.

Whose Information Is Assessed?

You need to know that anyone included on the mortgage loan is subject to all these evaluations from a mortgage lender. For example, if you and your partner plan to jointly take out a mortgage loan, you’ll both undergo these inspections. Furthermore, the lender assesses your debt-to-income ratio together, not separately, which affects your loan amount. 

Mortgage companies want to find borrowers most likely to repay their loans. This means that you will likely have a better loan rate if you are a lower-risk borrower, which allows you to qualify for a higher loan.

On the other hand, if they consider you a high risk, you may not qualify for a substantial amount, or you could face denial of the loan. 

Your Credit Score

Credit scores represent one of the first ways mortgage lenders evaluate your eligibility for mortgage loans. A credit score is like a snapshot of your credit information to the borrowers. 

While it’s not incredibly detailed, this score tells lenders a lot about your credit history. A credit score includes numbers ranging from 850 to 300. The higher the credit score, the better your credit and the more credit worthy borrowers consider you. A low score communicates you are a high-risk borrower.

Boosting your credit score offers a significant first step if you plan to apply for a loan with a mortgage lender to show you’re a trustworthy choice.

Savings Accounts

Another area mortgage lenders look into is your savings accounts. These accounts show rather than tell where your money comes from. For example, if you say you plan to put down 20% of your home’s value, it helps lenders see that you have that money in savings ready to spend. This extra cash often enables many lenders to deem some applicants as better investments than others. 

Payment & Loan History

Other factors affecting your eligibility with a mortgage lender include your payment and loan history. This history provides lenders a detailed record of all the payments made in your credit history. These payments can be on loans, credit cards, or anything taken out in your name. 

Payment history is an accurate way for lenders to determine if you have an accredited reputation for making timely payments. For example, lenders may give a higher loan amount to a borrower who historically pays all their loan payments on time instead of someone who does not typically repay on time. 

Income and Employment 

Mortgage lenders also look at your current income and employment status. Since mortgages involve such lengthy loans, lenders want to know that their borrowers have a steady, predictable, and substantial income. This income may be your entire household income as long as you list both parties’ names on the loan.

Typically, lenders will reach out to employers to verify any information. Additionally, they will look into your employment history to determine a consistent pattern of income to ensure borrowers are not complete risks.

Bank Statements 

Another element that mortgage lenders analyze when evaluating a borrower’s interest rate is their bank statements. If the lender notices an unequivocally high level of spending while under evaluation, you may translate as a high-risk borrower.

If this occurs, you might incur a higher interest rate because your debt-to-income ratio increases, and risky financial behavior is of concern.

Debt to Income Ratio

Debt carries a heavy financial blow to those who have it. As such, mortgage lenders look at borrowers’ DTI or debt-to-income ratio, which is a simple way of comparing how much you make versus how much debt you have.

This debt combines all your current loans, including credit cards, car loans, student loans, and other types of loans. It then compares it to your gross monthly income to show what percentage every month of your income goes toward your debt. 

The higher your debt-income ratio, the more challenging it may be to pay off an additional debt (your mortgage) each month, leading to a higher market interest rate and a lower overall loan amount. 

For this reason, many mortgage lenders want borrowers with a DTI ratio of less than 36% to ensure they have the money to pay off the mortgage loan without an immense amount of financial pressure. 

Trusted Mortgage Lenders

Learn more about what do mortgage lenders look at, how they evaluate your loan interest amount, and more by speaking with a trusted lender. Expert brokers at Champions Mortgage can help homeowners with conventional loans, competitive rate mortgages, fixed-rate mortgages, or how to refinance a mortgage for a better rate.

At Champions Mortgage, we make it simple so you can apply for a mortgage, choose a loan type, compare rates, and eventually close on your dream home. Our expertise and years of experience as loan officers help make the process simple for homeowners so you can make the best decisions for you and your family.

When you’re ready to start your home-buying journey or refinance your current home loan, Call Champions Mortgage in Sugar Land, TX, at (281) 727-2500 to find the perfect home loan and get personalized home lending services today!