The 4 main factors used to decide who qualifies for a mortgage

Lenders generally use a standard, specific criteria in order to determine if applicants can qualify to obtain a mortgage, and what the terms of that loan should be. The Motley Fool recently highlighted some of the metrics that lenders give most weight to when considering each individual applicant, and this information can be useful for real estate agents when it comes to advising their clients. So, here goes:

One of the main considerations is an applicant's income level. Most lenders believe that housing costs, which include the repayments on the mortgage, property taxes and home insurance, should not be more than 28 percent of a borrower's income. However, those with less debt may be allowed to take on a larger mortgage.

The next consideration is the client's debt load. Generally, the debt-to-income ratio of a borrower should fall between 36 percent and 43 percent. Lenders expect total debts—which include the cost of the mortgage, other housing expenses, and unpaid debts—not to exceed that percentage. Otherwise, a borrower may not get approved for a loan.

Credit scores are also an important factor. Lenders use this to determine if clients are a responsible borrower and set the terms of their mortgage accordingly (or refuse it outright!). For example, those with a credit rating of 740 or higher usually get more favorable terms, whereas those with a score below 620 could well see their application denied. Even so, some sub-prime lenders might accommodate clients with lower credit ratings at the expense of a higher interest rate. However, your clients could well be better off taking steps to boost their credit score in order to secure more favorable terms.

The last major factor is your client's employment situation. Those borrowers who've only been working at their current job for a short period of time, or anyone who changes job frequently might be rejected or offered less favorable terms. Generally, most lenders want to see at least two years of steady income prior to the loan application.