Housing Finances Getting Approved: How Lenders Judge You Read the Article Open Share Drawer Share this:Click to share on Twitter (Opens in new window)Click to share on Facebook (Opens in new window)Click to share on Tumblr (Opens in new window)Click to share on Pinterest (Opens in new window)Click to share on LinkedIn (Opens in new window) Written by Zillow.com Published Apr 24, 2013 2 min read Advertising Disclosure The views expressed on this blog are those of the bloggers, and not necessarily those of Intuit. Third-party blogger may have received compensation for their time and services. Click here to read full disclosure on third-party bloggers. This blog does not provide legal, financial, accounting or tax advice. The content on this blog is "as is" and carries no warranties. Intuit does not warrant or guarantee the accuracy, reliability, and completeness of the content on this blog. After 20 days, comments are closed on posts. Intuit may, but has no obligation to, monitor comments. Comments that include profanity or abusive language will not be posted. Click here to read full Terms of Service. As a consumer, you’re used to being the one with the power to judge the products and services you purchase and the companies that offer them. But when it comes to financing your new home or refinancing the one you already own, you hand that power over to the mortgage lenders and, more specifically, the underwriting department. A mortgage loan underwriter is tasked with carefully analyzing every bit of information the loan officer asks you to provide as part of the loan application process as well as the collection of “trailing documents” that you send in later to substantiate the information you’ve already provided. In general, the underwriter will attempt to verify two primary things in order to meet the bank’s criteria for offering you a loan: general creditworthiness and debt-to-income ratio. Evaluating creditworthiness The first thing the underwriter is concerned with is your general creditworthiness. This will give the lender an idea of your general willingness to repay your debts. There are many ways to determine this, but the most common way is to use a mortgage credit score. This score is based on an analysis of your various credit files. The most popular score is the FICO score offered by Fair Isaac Corporation, but there are others in use as well. The mortgage credit score uses consumer data stored by the three major credit repositories, Experian, TransUnion and Equifax. Income is generally not part of this calculation, but it is important, as we shall discuss shortly. Early in the loan origination process, the lender will request your permission to pull your credit scores and then purchase a credit score as part of the underwriting process. This number is used to determine how much risk you pose and, in some cases, to match you with the right mortgage loan product. The cost of these reports is generally passed back to you at closing. Debt-to-income ratio The second thing the underwriter will want to know is how the new mortgage payment will impact your ability to repay. The traditional calculation for this is the debt-to-income ratio, or DTI. The DTI is a comparison of your monthly gross income (before taxes) and your monthly debts. The debts in question include any consumer debt that would appear on your credit report, such as car loans, credit card debt and installment loans, as well as additional debt such as alimony or child support payments. DTI requirements vary by loan program, but typically underwriters are looking to see if the ratio of debt to income — after the cost of your mortgage principal, interest, real estate taxes, insurance and private mortgage insurance (if required) are all added in — is lower than about 40 percent. Some lenders require it to be even lower. Many other considerations go into the underwriting of a new mortgage loan, but these areas are generally where underwriters focus. “Getting Approved: How Lenders Judge You” was provided by Zillow.com. Previous Post 10 DIY Beauty Treatments That are Good Enough to Eat Next Post Should We Merge Finances After Marrying? Written by Zillow.com More from Zillow.com Browse Related Articles Mint App News Intuit Credit Karma welcomes all Minters! Retirement 101 5 Things the SECURE 2.0 Act changes about retirement Home Buying 101 What Are Homeowners Association (HOA) Fees and What Do … Financial Planning What Are Tax Deductions and Credits? 20 Ways To Save on… Financial Planning What Is Income Tax and How Is It Calculated? Investing 101 The 15 Best Investments for 2023 Investing 101 How To Buy Stocks: A Beginner’s Guide Investing 101 What Is Real Estate Wholesaling? Life What Is A Brushing Scam? Financial Planning WTFinance: Annuities vs Life Insurance