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What Banks Look For Before They Give You a Loan?

July 24, 2013

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What is your credit score?

Credit scores are perhaps the foremost consideration for banks when determining whether borrowers should receive loans of any kind. This is because credit scores are simple, easy-to-process numerical expressions of borrowers’ creditworthiness; a lender can quickly draw conclusions about how well someone will be able to pay back a loan simply by looking at their credit score.

Any borrower with a credit score well above 640 is considered to have good credit and can reasonably expect to receive a mortgage loan, provided the rest of their finances are also in good shape. Borrowers with credit scores in the neighborhood of 640 may need to demonstrate their ability to make mortgage payments in other ways. Finally, borrowers with credit scores well below 640 should find a co-signer or look for alternate forms of financing.

How long have you been employed?

For most Americans, the ability to repay loans is dependent upon the steady source of income their jobs provide. Lenders are understandably hesitant to issue a mortgage loan to someone with a shoddy employment history; potential borrowers who regularly cycle in and out of work will thus find it difficult to secure a loan.

The borrowers who are most likely to get a mortgage loan are those who have been steadily employed at one or more jobs for many years leading up to their application. Do you not match this description? A strong employment history might not be necessary if your credit score, savings and other finances look strong.

How much of your income will go to the mortgage?

A borrower who would spend most of his income making debt payments will make lenders uneasy. Ideally, a borrower’s mortgage payments will be less than half of his monthly income and easy for him to consistently make.

How much money do you have saved?

It’s important for borrowers to have a high volume of savings. Enough cash reserves must be available to make the down payment, which will ideally be 20 percent or more of the total cost of the house. Lenders will also take an applicant’s savings into consideration because that money may be relied on in the event that the applicant or a spouse loses their job.

Potential borrowers with only a little savings – enough for a 3.5 percent down payment and a small cash cushion – might be able to secure a mortgage loan, depending on what lenders they approach. Borrowers with no savings – those who are unable to make a down payment and lack a cushion of cash to fall back on – can count on not receiving a loan.

What will your debt-to-income ratio be

with a mortgage?

Before you apply for a mortgage loan, divide your monthly debt by your monthly income. In this case, “debt” is defined as recurring debt payments like credit card, car loan, student loan and child support payments.

If the resulting percentage (your debt-to-income ratio) is below or around 36 percent, it’s likely that lenders will be willing to give you a loan. Lenders will not be as interested in loaning you money if your debt-to-income ratio is significantly higher than 36 percent.

Are you a U.S. citizen or do you have

resident alien status?

There are no restrictions on non-citizens purchasing and owning real estate in the U.S., but it’s next to impossible for non-citizens to secure mortgage loans from an American lender. So, unless foreign buyers are planning on paying exclusively with cash or financing their real estate purchases with loans made in their home countries (something that most banks will not do), buying U.S. homes is unattainable.


PMC has over 50 loan programs and all of our lending specialists are dedicated to finding the right loan with the best rates, terms and costs to meet our client’s unique needs, but this is just the beginning of our service.

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