What Mortgage Lenders Look For When You Apply For a Loan

by | BiggerPockets.com

At some point, everyone dreams of being a homeowner. It’s a beautiful goal, but the process of getting there isn’t quite as pretty, especially when it comes to applying for a mortgage. Some lenders can be so picky that it seems impossible to qualify. Fortunately, the process is simplified when you know what lenders want.

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What Mortgage Lenders Look For When You Apply For a Loan

1. Credit History

Lenders must be sure that you have a history of making all of your payments before they give you such a large line of credit. They’ll assess your payment history, debt-to-income ratio, and the age of your credit history.

Related: Real Estate Financing: How to Choose Between Bankers, Mortgage Bankers & Brokers

To make sure each of these areas is in great shape, set a goal to make all of your payments as close to on time as possible, pay off as much of your debt as you can before applying, and don’t open a new account about the same time you’re looking to take out a mortgage. Though most of these things look better if you start doing them early, it’s never too late to begin correcting a poor credit history.

2. Current Bank Statements

Lenders check your current balance to be sure you have sufficient funds available for a down payment. If you do not, they will dig deeper into the matter to determine whether or not the money for the down payment is in place.

They also generally ask for the last few months of statements to ensure that you have had the money saved in your account for a couple of months, and it wasn’t magically deposited there right before you asked for the loan. Lenders like to see that you have been saving responsibly for the home.

3. Employment Verification

Lenders need to know that you have stable income, and the best way to verify a steady paycheck is to check your employment history. They’ll look at two years’ worth of tax returns to determine if you can hold a job and make enough money to keep up with your payments.

For self employed or freelance workers, make sure that your business funding is well organized and documented. You’ll likely be required to jump through a few more hoops as well, so if you’re looking for a great reference on getting a mortgage when you’re self-employed, click here.

4. Collateral

In essence, collateral refers to the assets you must turn over to the lender if you fail to pay your mortgage. The collateral in this case is the home you’re purchasing. The bank will determine the worth of the home, just in case the loan doesn’t work out for both parties. They’ll appraise the house, and if they deem it worth seizing, they will be more liberal with their loan amount. If not, they’ll be hesitant to grant you the amount necessary.

Related: I’m Using Ancillary Income to Cover 63% of My Mortgage: Here’s How

Unfortunately, you don’t have a lot of control over this aspect of the approval process. Since the real estate market crash of 2008, banks are much pickier about the kinds of homes they’re willing to finance, and it’s hard to tell what homes they’ll back.

The mortgage process can be nerve racking, especially if you aren’t sure your credit history is in line with what banks want. BiggerPockets can serve as your one-stop resource center for everything you need to know about the current housing market, how to shop for homes wisely, and how to work with your bank.

What would you add to my list? What advice would you give to a first time homebuyer?

Leave your comments below!

About Author

Larry Alton

Larry Alton is a professional blogger, writer and researcher who contributes to online media outlets and news sources. A graduate of Des Moines University, he still lives in Iowa as a full-time freelance writer and avid news hound. In addition to journalism, technical writing and in-depth research, he’s also active in his community and spends weekends volunteering with a local non-profit literacy organization and rock climbing.


  1. Nice job. very simple article on financing. I like the choice of simply vocabulary.

    On thing I l would like to add (if strictly real estate investing for profit) is “experience” as many lenders seek that you have enough experience in the business that you are seeking loan for.

  2. Ayodeji Kuponiyi

    Great list Larry. I learned all of this the hard way when I tried to refinance my home. I think you covered all the basis of what you need when applying for a loan. I would add doing research on the mortgage lingo so that you understand what a mortgage lender is saying When they use certain terminology like LTV.

  3. Andrew Syrios

    I will say that the simpler you can make it for them the better. We have several different LLC’s in different states. So we used to just submit a huge packet of documents. We then created a merged statement that is what we lead with and then use the rest of the documents as support. This has helped a lot as the original document dump was quite overwhelming.

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