Clear Talk About Loans

1. Debt-to-Income Ratio – Lenders often have guidelines as to how much money you have going out versus how much money you have coming in. This is known as your debt-to-income ratio. If your debt-to-ratio exceeds the level deemed acceptable, your lender may assume that you cannot afford the mortgage loan.

2. Credit History – It is important to lenders that an applicant has some length of credit history. If you have no credit, your lender has no way to determine what type of borrower you are. If you have a long credit history, on the other hand, the lender will know that you have experience managing credit and debt.

3. Number of Open Accounts – The number of open credit accounts that you have will factor into the lender's debt-to-income ratio calculations, and may affect your ability to get a loan. Most lenders use software that can calculate how much you will owe in minimum payments if you max out all of your available lines of credit. The lender then analyzes whether or not you will still be able to make your mortgage payment in this hypothetical scenario.

4. Number of Closed Accounts – If any of your revolving lines of credit were closed prior to the mortgage loan request, your credit report will indicate which account was closed, when it was closed, and whether it was closed at the request of the creditor or the account holder. A large number of recently closed accounts could raise a red flag with lenders, and may require an explanation.

5. Too Many New Accounts – Most mortgage lenders will see a flurry of new activity as a negative factor. If you have multiple accounts that you have opened recently, the lender may assume that you had recent money troubles. The common belief in the mortgage industry is that consumers, who know how to properly manage their finances, would not need to open multiple lines of credit within a short period of time.

6. Multiple Credit Inquiries – If you have recently had multiple credit inquiries, lender might take a closer look at your credit report in an effort to determine who made the inquiries and why. If the majority of the inquiries came from other mortgage lenders, there will be no problem. If, on the other hand, you have applied for every form of credit imaginable within the last 60 days, the lender may think you are on a full-blown spending spree.

7. Maxed Out Credit Lines – If you have already maxed out all of your available lines of credit, the lender may worry that you frequently live beyond your means. This could spell trouble for your mortgage application, as the lender will be by no means confident in your ability to make your mortgage payments.

8. Payment History – Your history of payments can make or break your loan application. This history will be one of the main deciding factors from the lender's point of view. If you have 30, 60, or 90 day late payment notations on a regular basis, the lender will have serious doubts in your ability to make your mortgage payments in a timely manner. Lenders are most interested in the current year and the previous year, but may evaluate consistency in other years as well.

9. Multiple Collection Accounts – Having multiple collection accounts on your credit report can severely damage your chances of obtaining a mortgage. When lenders see several accounts turned over to collections, they assume that you were either unwilling or unable to work things out with the creditor. It also indicates you were unwilling or unable to make the payments you promised to make.

10. Court Judgments – Having a judgment on your credit report also indicates you were unable or unwilling to meet your financial obligations. It also indicates your failure to make payment arrangements with creditors and collection agencies. If the court ruled in favor of the creditor, and forced you to repay the debt, the lender will most likely look unfavorably at your application and doubt your ability to commit to something as large as a mortgage payment.

11. Repossessions – If you have had an automobile or other property repossessed, it is another indicator of your unwillingness to pay a loan. When creditors are forced to take the tangible collateral that secured a loan, it does not bode well. Repossessions are similar to foreclosures, even if they are on a smaller scale.

12. Foreclosures – Having a foreclosure on your credit report within the past few years will make it extremely difficult to get approved for a mortgage loan. Most lenders will assume that if you have made the mistake of not paying your mortgage payments once, there is a high likelihood that you may do it again.

13. Liens – Liens are also viewed with hesitation by mortgage lenders. If you have a lien on your credit report, it signals a judgment made against you. This again says that you are unwilling to meet your financial obligations as promised.

14. Credit Counseling/Debt Consolidation – If you have used a credit counseling service or a debt consolidation service, lenders will view you as more of a risk. Using such services indicates you were unable to make your payment, work with creditors, and handle your debt on your own. While seeking out help may have been a wise thing to do, your mortgage application could be penalized as a result.

15. Bankruptcy – Although it isn't necessarily the kiss of death, a bankruptcy on your credit report will garner serious attention from the lender. A bankruptcy indicates you had trouble managing your income expenses and your credit. Neither scenario will be beneficial to your mortgage application.

16. Auto Loans – Auto loans are usually overlooked by lenders providing you make your payments on time. Because the loan is secured by the car itself, failure to pay on the loan will most likely not affect your ability to make your mortgage payment.

17. Student Loans – Like auto loans, student loans are of little consequence. Even though they are not secured by collateral, most lenders figure student loans differently into their calculations. Some lenders have special software set up to calculate student loan debt in a different fashion than other types of debt.

18. Evictions – Evictions will appear on your credit report if you were evicted because of a failure to pay your rent. Having an eviction doesn't look good because it indicates to the lender you were unable or unwilling to make your rent payment. Since rent payments are similar to mortgage payments, the lender will definitely take an eviction into consideration when making the decision to approve your mortgage loan.

19. Employment History – Although it may not appear on your credit report, your length of employment will be evaluated, as there is a direct connection with employment and your ability to pay the loan. The longer you have been at a job, the more stable your income seems. Scattered employment or new employment will not be deemed positive in the eyes of a lender.

20. Time at Current Address – Just as length of employment indicates stability, so does the amount of time you have spent at your current address. If you have been in one place for a long time, the lender knows you are able to manage your money and pay your monthly living expenses. If you have multiple recent address changes, it may demonstrate inconsistency and a problem paying your bills.