There are many things that you may want to purchase throughout your life, such as a car or a home that will require you to get a loan. There are a few key things that most lenders will be looking for when you apply for a loan. Below we have listed 5 common things lenders will want to know or require before giving you a loan:
- Credit: Good credit is necessary if you plan to use credit to make a major purchase, such as a car or a home. It is also necessary if you want to be able to take advantage of the convenience credit can provide. The importance of good credit also extends beyond purchases; potential employers and landlords may use your credit information as part of the selection process.
- Credit History: This is determined by existing credit relationships. Factors may include collection activity, credit card accounts, judgments, secured & unsecured loans and mortgages.
- Employment History: Potential lenders look at the length of employment history as a sign of your personal character and creditworthiness. Do you have a reliable job and steady income? The longer you have been employed at one job significantly impacts your character and creditworthiness in regards to a loan.
- Debt-to-Income Ratio (DTI): A debt-to-income ratio (DTI) is one way lenders (including mortgage lenders) measure an individual’s ability to manage monthly payment and repay debts. DTI is calculated by dividing total recurring monthly debt by gross monthly income, and it is expressed as a percentage.
- Down Payment: Many loans, especially Mortgages, require a down payment of 5%-20%. Do you have available monetary resources to meet Down Payment requirements?
Lenders will have different programs or products to meet the financial needs of their members/customers. However the basic requirements for obtaining a loan are the same. Understanding what a potential lender will be looking at BEFORE you apply can impact whether you receive a loan.