What criteria do lenders use when approving a loan? Lenders look at three criteria: Capacity, Credit and Collateral.
CAPACITY The lender will weigh your housing expenses and total debt against your monthly income to determine your ability to repay a loan. They ll also need proof that you have the cash available for down payment and closing costs by verifying funds from sources such as bank accounts, stocks, bonds, mutual funds, sale of an existing home, or gifts from family members. CREDIT To determine your credit risk, the lender will look at previous mortgage payment history, rent payment history, credit card use and installment debt payment history. If you pay your bills regularly and on time, you re demonstrating the integrity that lenders are looking for in a borrower. COLLATERAL When you ask for a home loan, you re putting the home itself up for collateral, so the lender will want to know what the home is worth.
