Many folks are blissfully unaware that home loan applications depend on more than just a good credit score. Lenders tend to tout the importance of credit scores and overall financial well-being when it comes to loan applications. However, we now know that many other factors come into play when determining a person’s eligibility for a home loan. These include your housing history, credit decisions and your social media presence among others. True to form, credit scores are often regarded as the #1 reason somebody gets denied or approved for a home loan, but in and of itself it’s not enough. Of course, the importance of a good credit score cannot be underestimated.
Lenders Consider the Following Factors As Part of Their Decision to Grant You a Home Loan
Debt to income ratios otherwise known as payment to income ratios are an important determinant of a person’s eligibility for a home loan. This simply calculates how much debt you have relative to your income. If that ratio is under 40%, you’re generally considered to be in a favorable category when it comes to home loans. However, your payment history is equally important. Clients with a poor payment history and poor credit are automatically flagged. Your recent missed payments are going to be the most important aspects of the decision-making process. Payments that you missed from several years ago are unlikely to feature as prominently with lenders.
Your employment history is another important consideration. This is particularly true with subprime lenders. These companies make a big deal of stable employment. They will often reject applications where the borrower does not have stable employment. Much the same is true of a person’s housing history. If an individual is peripatetic, or is unable to hold down a residence, this is indicative of money-management problems or instability. This also makes it more difficult for the borrower to track down the home loan applicant if he or she defaults on the mortgage repayment. If a borrower does not have a regular source of income, a 401(k) or similar retirement plan may come into the mix. Borrowers will almost always evaluate your tax history, previous bank statements and even your pay stubs as proof of your eligibility for a loan. Nowadays, banks and other financial institutions are carefully analyzing social media profiles as evidence of a person’s eligibility for credit. If your public social media profile displays irresponsible financial behavior, you will likely be denied for a home loan.
Yes – Credit Scores Are Important Too
In case you’re wondering what’s a good credit score, it all depends. Each borrower is different, and there are 3 major credit bureaus in the US. These include Transunion, Experian and Equifax. Experian credit scores range between 360 and 840, Equifax scores range between 280 and 850, and Transunion credit scores range between 300 and 850. Your FICO score will affect your eligibility for all types of loans. FICO is otherwise known as the Fair Isaac Corporation. With the FICO rating scale, excellent credit is regarded as a score between 720 and 850. A good credit score ranges between 690 and 719, fair or average credit ranges between 630 and 689, and poor credit ranges from 300 to 629. Maintaining a healthy credit score is easy. Simply make your payments on time, ensure that the money you owe does not exceed 30% of your income, keep a clean credit history, and don’t apply for too many new lines of credit over a short period.