New Survey Shows What Financial Institutions Want for Mortgage Qualification

Filed under: Qualifying for a Mortgage Loan

mortgage approvedMany people looking into purchasing a home know that qualifying for a mortgage can have its challenges. Many factors determine if you will be approved or rejected, including having little or no savings, having a low credit score, and having incorrect documentation of your income to support your mortgage’s monthly payments.

According to a recent article by Kenneth Harney, a new survey done by FICO, allows potential home buyers a look inside what credit-risk managers at financial institutions think about why people looking into buying homes are rejected.

The survey shows that your Debt-to-Income Ratio, or DTI, is the #1 determining factor. Most potential home buyers usually believe it is their credit score or how much money they have in the bank, but nearly 60% of the risk managers in the study rated excessive DTIs as their top concern.

What makes this difficult for the home buyer is that he or she usually only have a vague idea in advance of an application about what his or her DTI is, how a lender views the DTI, and what possible limits the home buyer may encounter.

Harney explains that Debt-to-Income Ratios for home loans are the most direct indication to a bank determining if you are going to be able to afford to repay the money you are attempting to borrow.

A DTI measures your gross income from all sources before taxes against your proposed monthly housing expenses, including the principal, interest, taxes, and insurance that you will pay for your mortgage.

Your DTI also has a back-end ratio, which will measure your income against all of your recurring monthly debts. Included in this, for example, would be your housing expenses, credit cards, student loans, and personal loan payments.

In the article, Harney says that lenders like to see your housing expense ratio come in no higher than 28 % of your gross monthly income, while your back-end ratio should have a maximum of 43%, although both of these numbers can be worked with.

The FICO survey also found that the second major concern for loan officers is multiple recent credit applications. The third concern is having a low credit score. Most lenders like to see a FICO score above 700.

If you are looking into purchasing a home and would like some advice about the information to qualify for a loan, please give me a call and we can discuss all of your concerns.


Franklin Loan Center | NMLS 237653
Licensed by the Department of Financial Protection and Innovation under the California Residential Mortgage Lending Act, 4131316
For questions or concerns please email