5 Ways to Strengthen Your Mortgage Application

Shopping for a home is an exciting time, but applying for a mortgage? That can quickly take all the fun out of it.

Most first-time homebuyers have no idea what happens after they submit an application. What do mortgage lenders look for? What determines whether you're approved? And what can you do to improve your chances for approval before you apply?

In this blog, we’re pulling back the curtain on the mortgage application process to give you a closer look at five key areas lenders review — and what you can do to strengthen each one.
 

What do mortgage lenders look for when reviewing an application?

While every situation is unique, mortgage lenders generally evaluate the same core factors to determine whether a borrower is financially prepared to take on a home loan. Though mortgage qualification requirements vary, most lenders review your credit history, debt-to-income ratio, employment and income stability, down payment funds, and the property itself.

Understanding these criteria can help you start the application process with your best financial foot forward.
 

1. Credit History

What it is: Your credit history tells the story of how you've managed debt and financial obligations over time. Lenders review information such as your payment history, existing credit card accounts, and overall credit behavior. A strong credit history shows responsible financial management, while missed payments or significant credit issues may raise questions that require additional review.

How to strengthen it: Small changes made over time can help strengthen your credit history to give you a better chance of being approved for a mortgage. If you're planning to buy a home in the future, consider taking these simple steps:
 

• Pay bills on time whenever possible
• Review your credit reports regularly for accuracy and report any errors immediately
• Avoid opening new credit card accounts close to when you plan on applying
• Work toward paying down outstanding balances where you can

2. Debt-to-Income Ratio

What it is: Debt-to-income ratio compares your monthly debt obligations to your gross monthly income. Lenders use this measurement to understand how much of your income is already committed to existing debts. A lower debt-to-income ratio means there’s more room in your budget for a future mortgage payment. Examples of debts that may be considered include:
 

• Student loans
• Auto loans
• Credit card payments
• Personal loans

How to strengthen it: Managing existing debt is an important step in the mortgage approval process. Even small gains can help improve your overall financial picture. You may be able to improve your debt-to-income ratio by:
 

• Paying down credit card debt
• Avoiding taking on new debt before applying
• Increasing your income through overtime or side gigs
• Creating a budget that helps you manage your monthly bills

3. Employment and Income Stability

What it is: Lenders want to see that you’re able to make mortgage payments reliably over time. That's why employment and income are important parts of the mortgage application review process. Lenders are looking for a stable source of income and a clear understanding of your employment situation, but they also acknowledge that people change jobs, launch their own businesses, or change careers. The goal is basically to assess your overall financial stability.

How to strengthen it: The more clearly you can document your income, the smoother the process will be. Before applying, consider:
 

• Gathering income documents, such as recent tax returns and paycheck stubs
• Avoiding major employment changes, if possible, during the application process
• Maintaining consistent employment when possible
• Being prepared to explain recent employment transitions

4. Down Payment and Available Funds

What it is: Lenders review how much money you have available for your home purchase. This includes funds for a down payment and other homebuying-related expenses. A healthy amount of savings shows that you’re prepared and may reduce the amount you need to borrow.

How to strengthen it: If homeownership is one of your goals, create a savings plan to help you get there. The earlier you begin preparing, the more options you may have when you're ready to buy. Some ideas include:
 

• Setting up automatic transfers to a dedicated savings account
• Creating a monthly homebuying budget
• Reducing discretionary spending where possible

5. The Property Itself

What it is: Mortgage approval isn't based solely on the borrower. The property being purchased is also evaluated. This review helps ensure the home meets the financing request. Lenders review factors such as:
 

• Property condition
• Appraised value
• Location
• Whether the property meets lending guidelines

How to strengthen it: Choosing a property that fits within your budget can make for a smoother homebuying experience. While you can't control every aspect of a property, you can:
 

• Work with knowledgeable real estate professionals
• Research homes carefully before making an offer
• Understand the condition of a property before purchasing
• Be prepared for an appraisal as part of the process

Use Our Online Tools to Help You Prepare

Understanding mortgage application requirements is one thing. Preparing for them is another.
If you're still in the planning stage, Carter Bank's Homebuyer Budget & Timeline Tool can help you run the numbers before buying a home with estimates and timelines based on your life.

Whether you're planning to buy in a few months or a few years, taking time to evaluate and make improvement to your financial situation now can help you be more prepared when it's time to begin the mortgage application process.
 

Start Home Shopping with Confidence

The mortgage application process shouldn’t feel shrouded in mystery. Once you understand what lenders look for, you can take action to give yourself the best chance for approval. When you’re ready to have that pre-approval conversation, Carter Bank is here to help you go from dreaming to shopping to owning.