What is taken into consideration for loans?

JPowell · Joined: 20 Jan 2010 Posts: 103 Location: PA

I know they look at your credit score and your income but I don't really know or understand all the details.

If a couple's income is only around $50,000 per year is that enough to get a loan? I have a low debt to income ratio (unless collections and charge offs are counted) but my partner's may be a bit higher since he has a lot more school loans on his record than I do.

What else goes into loan approvals?

heidrek · Joined: 25 Jan 2010 Posts: 7

As I understand it there are a number of factors that go into your viability for a loan:

1. Credit rating. A good credit score means tyou have a history of paying your bills on time and reliably. you haven't defaulted on your debts and have basically shown yourself to be a reliable and intelligent person with good sense and a stable enough income to keep on top of your outgoings. This gives the lender comfort as you've proved you can make smart choices and aren't prone to getting in over your head.

2. Income. to pay a loan off you need an income, the more the better, and the more STABLE the better. Lenders want to know that you can make your payments every month, not just some so if you can demonstrate a stable income in a job you've been in for a awhile this will also give them comfort. the amount you need to earn depends on how much you want to borrow. Where I'm from a lender will not allow (as a general rule) you a loan whose repayments come to more than 33% of your net earnings. Self Employed people often have some trouble with this as their incomes tend to fluctuate more than salary earners. Bear in mind that it is your NET income they will be interested in, so if you have financial commitments like other loan repayments or child supoort this will reduce your income in the banks eyes - as it should. They need to know your REAL repayment capacity.

3. Equity/Deposit/Security. This aspect is particularly important in the current climate of falling house prices. The lebnder needs to know that if you default, they can sell the security (house) to recover their loan. This means they will not lend more than a proportion of the homes current value, and you have to come up with the rest. the amount they will lend depends on the lender but 80% isn't too far from standard I think. This means that even if the house drops in value a little they will still be able to sell it to get their money back.

The greater the deposit you have to put down the more the lender will agree to let you borrow. Likewise if you have other assets you can use as additional security to the loan this may also increase the amoun the lender is willing to give you.

These are the three main ones I believe. If you are weak in one area but very strong in the other two you may be able to get away with it, but it's better to be solid in all three than great in one.

JPowell · Joined: 20 Jan 2010 Posts: 103 Location: PA

Thanks Heidrek that was really great info.

Where are you from where it's 33% of your income? Does anyone know if that's standard across the US or does it vary from state to state?

Right now I don't think we make enough to get a decent home loan since our income is relatively low and my SO has a $300 student loan payment due every month, but it's still good to have a ball park idea.

jhonny07 · Joined: 31 Jan 2010 Posts: 10

There would be a fixed percentage on your income that you will have to pay monthly well all kinds of loans goes like this

MrPink1130 · Joined: 11 Feb 2010 Posts: 17

SIMPLE:

FICO score, DTI, LTV