Need a loan? Here’s what lenders are looking for…

June 20th, 2014 John J. Garcia

Like most people, you’ll probably need to get loans to make important purchases throughout your lifetime – from mortgages to car loans to home improvement loans. To get your loans approved, and get the best interest rates, it’s important to understand how lenders analyze your financial situation.  By knowing what lenders look for, you can make better long-term financial decisions that help get the loans you need.

Here are four key things lenders pay attention to.

Credit report

Your credit report gives the lender a view of your overall credit history, showing them other lenders who have given you loans and credit, your number of credit accounts, your payment history and your current debt.

In addition, your credit report provides the lender your credit score. For most lenders, the higher the score, the lower the risk. So it’s important to build a positive credit report and high credit score by keeping your debt level reasonably low, making payments on time, limiting your number of credit accounts and limiting your number of loan applications.

Income and employment

Most lenders also want to know about your current job and income. They may also take a look at your employment history to see if it’s been consistent over time, and to feel confident that your current job is secure.

They’ll want proof of your income, and for large loans, will often ask to review your latest tax return. In addition, they look at your debt to income ratio –the lower the ratio, the better chance for approval. Having a strong employment history and a solid income level significantly raise your potential for loan approvals.

Assets and collateral

Your assets and investments also provide key insights for lenders. They’ll often ask you if you own a home, own cars or other vehicles, have investments in stocks and bonds and have a savings account.

If you own a home, they’ll want to know how much equity you have in it. The higher your home equity, the lower the risk in approving your loan.  In addition, a savings account and other investments are positive elements to lenders.

Purpose of the loan

Many lenders also ask about how you will use the loan. If they learn it will be spent on things with real value – such as vehicles and home improvements – they feel the risk level is lower, and they’re more confident in approving the loan. So it’s important to provide them with specific information on how you’ll spend the loan.

Knowing what lenders look for gives you a lot of advantages. It helps you build your financial history, prepare for loan applications and be able to offer all the information lenders want.

John J. Garcia

About the author

John J. Garcia is a Real Estate Banker with MidWestOne Bank. He helps customers navigate the home buying process and achieve the dream of home ownership.

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