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  • Cathy Hertler

The Two Ways a Mortgage Lender Judges You





by on MAY 9, 2016




After you have completed all the paperwork on your end, you may be wondering what exactly is the underwriter looking for?

Typically, the underwriter is looking for two things: 1.) your general creditworthiness and 2.) your debt-to-income ratio.

How does an underwriter evaluate creditworthiness?

Your creditworthiness will give the lender an idea of your willingness to repay your debts. The most common way to determine creditworthiness is to use your credit score. The lender usually uses your FICO (Fair Isaac Corporation) score. Your FICO score is based on an analysis of your various credit files by the three major credit repositories, Experian, TransUnion and Equifax.

How does the underwriter determine debt-to-income ratio?

The second thing the underwriter wants to determine is how the new mortgage payment will impact your ability to repay. The underwriter will use a calculation called debt-to-income ratio (DTI). When calculating DTI the underwriter compares your monthly gross income (before taxes) and your monthly debts. DTI requirements vary but typically the underwriter is looking to see if the ratio of debt to income— after the cost of your mortgage principal, interest, real estate taxes, insurance and any private mortgage insurance — is less than 40 percent.

There are many other factors that go into whether or not you will be able to obtain a mortgage but these are two of the biggest factors.

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