As anyone who has attempted to secure a home loan can attest to, banks take a hard look at borrowers before green-lighting the issuance of any credit. While you’re looking at homes for sale, banks are looking at you to see if you’re a reliable investment. Here are four of the qualities that banks assess when looking at home loan applicants.
Character may sound basic, but it is one of the biggest factors that influences a lender’s decision to supply a loan or reject it. At the end of the day, despite some of the other tools at lenders’ disposal discussed later on, giving a loan with no 100% guarantee of repayment is a risk.
Banks cut down on that risk by assessing character to determine the likelihood of the recipient to meet their obligations in terms of making timely, complete payments. Although character is not as objective of a measure as a hard numerical figure, it does significantly affect the outcome of a loan application.
Buying a home is a big investment for most people—in fact, real estate is the single more important investment that middle and working-class people make. Similarly, distributing home loans is a large commitment for any bank, with hundreds of thousands (or even millions) of dollars on the line if the borrower fails to repay.
Because of that, banks often look to lend to borrowers who have something in the way of collateral—other real estate property, stock market investment, or other assets that can back up the agreement on the borrower’s end.
As the old saying goes, the best predictor of future behavior is past behavior. Of course, not everyone with poor credit is a risk to not repay their loan, but it is a potential red flag for risk-averse lending institutions.
The good news is that if you have a spotty financial post, repairing your credit is possible with diligence and the right strategy. Your credit score is the ultimate number that banks initially look at when reviewing an applicant’s history. Learn your own credit score with a free credit report available on the web.
Your ability to repay a home loan ultimately depends on maintaining an income. For most people, that means holding a steady job. Accordingly, lenders often consider an applicant’s occupation status, including income and future prospects, when deciding to loan or not.
In a related consideration, lenders also often consider the time that the applicant has spent in their job, with a preference for those who have spent several years with a single employer.
Although lending organizations often use other criteria as well, these four arguably hold the most weight in the minds of decision-makers.