Your credit score is a critical factor that mortgage lenders consider before approving your loan, but it is not the only one. The financial institution providing the loan or the firm to whom the mortgage processing is outsourced will look at the comprehensive profile of the applicant to decide on loan approval as well as for deciding the interest rate.

Credit History

A credit score is calculated from information collated from credit reports and can be used to predict if and how you will repay the money you borrow. However, it does not paint the whole picture; therefore, lenders can seek reports from the leading credit agencies. The main component of the report is your credit history; that is, it shows how you have repaid your past loans.

Red flags the lender will watch out for include:

• Declaration of bankruptcy in the past
• Unpaid collection accounts
• Accounts paid with a delay of 30 days or more
• Debts outstanding
• Recent applications for loans and credit cards
• Foreclosures.

Having a couple of these need not result in rejection of the loan but may push up the interest you are charged.

Income and Expenses

Having a steady and decent amount as income is always a plus because it tells the mortgage BPO firm that you have the resources to meet your financial obligations each month. Bear in mind though, that if you also have a high rent or mortgage payment, you may not be able to command a lower interest rate.

When a borrower applies to the Federal Housing Administration for a mortgage, their debt-income ratio needs to be a minimum of 43% – the lower, the better. With a good credit score, the lender may be willing to let the ratio slide to 50%, but not for someone with a low credit score.

Down Payment

The lender has lesser risk with a lower loan amount, meaning your down payment is higher. You are likely to get a favorable interest rate in this case. Applicants with a not-so-great credit score may be able to get mortgage approval with a high down payment.

Loan term

The shorter the term you seek for the loan repayment, the happier the lender because it means that your ability to repay is likely to remain the same over the mortgage tenure. Even with higher EMIs, the total interest you pay over time will be much lesser, and you’ll be debt-free quicker.

Liquid assets

Even though your monthly income is an important factor in the loan approval process, the mortgage processing firm will check if you have assets you can liquidize quickly, like stocks and bonds, savings account, etc., in case you are laid off or have unforeseen financial emergencies. A borrower with adequate liquid assets is seen as less risky and may be offered a lower interest rate.

Employment History

It is possible that the lender may want to check your income and employment history for the past couple of years to see how stable your income is. Recent unemployment or vague history may result in higher rates of interest being charged.

Most of the time mortgage lenders are assisted by mortgage BPO to look into each of these aspects of borrowers and provide an accurate report to underwriters. These mortgage BPOs are third-party vendors who specialize in performing all mortgage back-office tasks.