Loan Application Decision Factors Besides Credit Score


loan application decision factorsWhen it comes to applying for a mortgage, personal loan, or even opening a new credit card, credit score is the primary factor.  While those with excellent credit of 740-850 should have no trouble getting loan approval with minimal documentation, what about those with the median credit score of 723 according to FICO, or even lower?  Although approval is never guaranteed solely on credit scores, there are many other factors that will play a decision in the approval process, and the lower the credit score, the more documents that may be requested. 

Stressed out about the whole loan application process? Besides getting your finances in shape, taking care of yourself by getting plenty of sleep, eating healthy, and possibly taking some protein supplements for weight loss during the stressful loan approval process can help bring down stress levels.  While there is typically an industry standard on each factor, all lenders have the right to lend on different criteria, and any of these factors may be requested during the application process:

 

Income & Assets

Gone are the days where you could state your income on the loan application and it was a quick approval.  With the mortgage housing crisis having been both the lender and borrower at fault for payments they could not afford, in today’s industry, proof of income and assets are absolutely necessary on all loan approvals.  W-2, full tax returns, bank statements, and investment account information all common requests and any or all could be asked for as part of the approval process.

 

Employment History

Typically requiring a two year employment history for loan approval, lenders want to make sure there is stable employment to ensure that repayment can be made.  If there is a gap in work history such as school, unemployment, or switching fields, make sure that you disclose all to the lender, provide a letter or explanation why, and exceptions could be made, as lying and getting the loan would just be hurting yourself, setting up for a monthly payment you probably cannot afford.

 

Housing

Much like employment, lenders want to see a stable borrower when it comes to housing history.  Seeing too many moves in a short period of time could be a red flag for potential issues when tracking down a borrower if there was default. 

 

Debt-to-Income Ratio

If you add up all of your monthly expenses and divide by your monthly income, your debt-to-income percentage, for loan approval typically should be under 36%.  Having percentages over 36% show that you could be facing too much debt and are overextending in home and auto payments, not to mention credit card debt.

 

Social Media

While lenders collect information for your loan decision, what you do on social media could also hold weight in the future.  According to the Wall Street Journal, some small business lenders are going through applicant’s profiles and status updates, so could this mean that part of your mortgage approval process could be explaining your Facebook profile?  It may be a long way away but you better start curbing your social media rants.

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One Response to Loan Application Decision Factors Besides Credit Score

  1. Jayson @ Monster Piggy Bank 04/01/2016 at 6:24 pm #

    Spot on! That’s why I always decide on each post I may have to put up on the social media. We have to really think twice before posting anything.

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