Ten Key Factors When Applying for a Mortgage Loan

Lenders consider many different factors when deciding whether or not to offer you a mortgage — and at what rate. You can improve your standing by paying close attention to these factors and making sure you don’t do anything to sully your credit.

1. Your credit report. Get copies of your credit report from all three major credit bureaus and review them carefully. It is estimated that more than 40 percent of credit reports contain errors. Don’t let errors raise your rates or stop you from getting a mortgage. Have any discrepancies reviewed and corrected. How Can You Do a Credit Check on Yourself?

2. Outstanding credit. Before you apply, pay off all credit cards and outstanding bills paid or carry very low balances.

3. Credit card accounts. If you know you will be applying for a mortgage, don’t apply for new cards or close current accounts. This may make lenders suspicious.

4. Your down payment. The more you can put down up front, the lower the loan, and the more likely you are to be approved. Of course, if you have excellent credit, you’re likely to be approved regardless of how much money you put down. But if your credit is less than perfect, the amount of your down payment may mean the difference between rejection and approval.

5. Your income. You will need to show steady sources of income, so don’t quit or change jobs right before applying for a mortgage.

6. Interest rates. Interest rates won’t determine whether or not you get a loan, but they will help determine how much you will have to pay each month. While the review process and paperwork can take a while for the lender to process, interest rates will continue to change. Therefore, if you think interest rates may rise, consider paying a “lock-in” fee to guarantee you’ll get a favorable rate.

7. Available funds. In addition to a down payment, you will need to have funds available for closing costs and to pay for points (if necessary). Don’t make major purchases and risk depleting your available funds just prior to buying a home.

8. Your price range. Your lender isn’t likely to issue a mortgage for a home you can’t afford. Figure out your debt-to-income ratio to get an idea of how much you can afford to pay on a monthly basis. Read more about Debt to Income Ratios.

9. Your lender. Every lender is different. Ask about how many mortgage applications they approve and disapprove. It’s not a good sign if the lender denies 20 percent of the people who apply. Due diligence on your part is valuable. Learn about the history of the lending institution and about their reputation.

10. Honesty. If you lie, hide, or try to alter information to increase your chances of getting a loan, you risk being charged with fraud and may never find a lender who will work with you again. “Full disclosure” should be your mantra.