05/20/2020: What Do Banks Consider Before Approving a Mortgage?

Despite the challenges we’re facing thus far in 2020, Citizens Bank has been working overtime to make sure that your plans for buying a new home aren’t derailed. Now more than ever, it is crucial that we continue in our mission to provide home loan and mortgage information for recent and potential home-buyers. 

In our last blog post, we talked about how to improve your credit score. Your credit score, though integral to the home buying process, is but one of many elements that banks take into consideration when determining mortgage approval. Today, we’re going to broaden our scope a little bit and look at some of the major factors that go into mortgage approval. 

The major factors of mortgage approval

As we mentioned above, while credit scores are essential, there are several factors that banks take into account when determining whether to approve a mortgage loan. Lucky for you, these factors are largely interlinked, allowing you to better organize them before submitting your application. Better yet, we’re here to help you every step of the way!

The major factors that go into mortgage loan approval are:

  1. Size of your down payment
  2. Your credit history (it’s back!)
  3. Your employment history
  4. Your debt-to-income ratio
  5. What loan you’re applying for

Size of your down payment

Down payments determine how much you will need to borrow. For example, if you pay down 10% of the price of the house, you will borrow 90% from the bank to pay off the rest. 

The beauty of mortgage lending lies in the flexibility of the process. Put simply, there’s a loan package for everyone. Regardless of what you’re able to put down on the house, Citizens Bank will work with you to determine the mortgage loan that best suits your needs. 

The loan you’re applying for helps determine the required down payment. 

Credit History

Time to talk about our old friend: credit! 

Credit history covers all the purchases you’ve made across the course of your life on credit. This includes taking out student loans for college or using your credit card on a daily basis. The more credit you’ve used, the better your score, and it certainly helps if you’ve made timely repayments. 

Your employment history

In general, banks want to see that you have maintained a strong history of employment. This ensures the lender that you will make timely payments on your mortgage loan. 

Citizens Bank understands all too well that factors out of your control can affect employment. Present times certainly speak to this. We’re here to work with you in such cases, understanding that this is an extremely difficult time for all of us. 

Your debt-to-income ratio

Here, you can start to see how these factors are interlinked. 

Your debt-to-income ratio is determined by the amount of debt you have as compared to your annual income. This ratio relies on your employment history. A lower debt-to-income ratio can show that you’ve managed your finances well.

What loan you’re applying for

All of the factors above depend, of course, on what kind of loan you’re applying for! 

Each type of loan has different requirements. Some mortgage loans might not require as high of a down payment, while others might require a lower debt-to-income ratio. 

We here at Citizens Bank are all too happy to provide insight into the mortgage approval process. Now that you’re aware of all the factors that go into mortgage approval, you’re well on your way to buying your home! 

We highly encourage you to visit the Ask Joan page, which is supplementary to the Citizens Bank website, where you’ll be able to locate more information about buying a home in 2020!