What Are Lenders Looking For?

Every lender has different qualifications that must be met before giving anyone money - and mortgage lenders in particular have grown more and more stringent over the years. Even if you are not looking to buy a house right now, you have probably heard about the state of the housing market: inflated prices, high interest rates, and - somehow - there are still lots of competitive buyers! Over the past fiscal year, first-time-home-buyers accounted for 1/3 of all purchases - and maybe you have dreams of buying your first house this holiday season, but you aren't sure how to get the best deal. As with any financial endeavor, it starts with the lender and your credit score!

How Does Your Credit Impact Home-Buying?

When it comes to getting a home loan, your credit score is the most important factor, second only to your income. But what exactly is the lender looking for? Although we can't guarantee all lenders follow these guidelines, here are some major factors they will be looking at when they review your credit report...

1. Overall Score: For the most part, lenders expect you to have a "Fair" credit score (usually the minimum is around 600 FICO score). If it is lower than this, you probably will not get approved.
2. Payment History: Late payments and delinquent accounts will reflect very poorly to a home lender. They want to know you have a history of paying your bills on time!
3. Debt-To-Income Ratio: Lenders will look at what percentage of your income goes toward paying debt on a monthly basis. The debt-to-income ratio analyzes how much money you have vs how much money you spend. If you are carrying credit card debt month-to-month, this could hurt your approval odds! If you spend less that 35% of your income on bills each month, that is considered to be an 'healthy' debt-to-income ratio.
4. Derogatory Accounts: These are items such as collections accounts, foreclosures, repossessions, bankruptcies, and other MAJOR negative items on your credit report. It will be very difficult to get approved for a mortgage if you have any of these items, especially if it was recently added, on your credit report.