The Real Estate Loan Application Process

In determining the size of a mortgage loan you can qualify for, lenders will look at your ability to repay your debt over a period of several years, as well as the amount of collateral that you are putting up as a guarantee.

The main things that affect the amount you can borrow are:

Your income: Income levels are one of the most important factors that lenders consider in determining whether a person qualifies for a loan. Typically, lenders don’t want your monthly housing expenses to exceed stipulated percentages of your gross monthly income.
Your FICO score: FICO scores – often called credit scores - are the tools that most mortgage lenders in the U.S. use to evaluate home loan applicants' creditworthiness. The higher the credit score, the lower the perceived risk for a lender. As a result, lenders often offer lower interest rates for people who have good credit scores – meaning that those individuals can borrow more money. The FICO score takes into account:
- Quality of credit report
- Payment information on many types of debt accounts (credit cards, auto, mortgage and student loans, etc.)
- Bankruptcies, foreclosures, suits, wage attachments, liens and judgments
Your assets: Lenders examine your personal assets in the loan application process. Of particular importance is the amount of cash you can put up as a down payment and to cover closing costs. Some lenders may let you put down very little money down – i.e., 3% or even 0%.
Your liabilities: Another important factor that mortgage lenders consider during a loan application is a borrower’s recurring debts. In deciding whether you can meet your monthly interest and principal payments, lenders factor in any other debt payments you’ll need to make during the life of the loan. So if you can pay off some of your existing debt before beginning the mortgage loan application process, you may want to do so.

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