Mortgage Basics: How Lenders Evaluate You

To qualify you, lenders look at three main factors:

1. Affordability. Lenders use a debt-to-income (DTI) ratio which tells them what percentage of your income will be going towards all of your bills. They will let you spend as much as 43 percent of your income on housing and non-housing bills.

2. Credit health. Lenders will run your credit report from all three credit bureaus — Equifax, TransUnion, and Experian — and base your loan approval on the middle of your three scores. In addition to scores, the reports lenders pull will also show them your full credit history which they also consider. If you run your own credit scores, your lender won’t use them — they must use their own, and the reports they pull will most likely produce different scores than you’re able to obtain as a consumer. See below for how to review your credit history for free.

3. Skin in the game. Lenders consider down payment and how much money you’ll have left over after you close a home purchase — they review this against the DTI to consider how fast you’ll be able to build up reserves. As noted below, lenders will still allow very little down, and some loans don’t require money left over after close. But even in situations like this, you should consider whether you want to own a home with no reserves.


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