What lenders consider during the application process

You did it. You made the decision to buy a new home this year. But what considerations go into getting your home loan? What’s the difference between an approval or denial?

At Pacific Funding Mortgage Division we pride ourselves on our quick turnaround times so that you can get your home funded and moved in quickly. We go into what our underwriters analyze during the first steps of your application, and what might prevent you from getting approved!

Capacity to pay back the loan

Not only is your credit score crucial to your application, but lenders also look at your ability to repay your mortgage over time. Capacity deals with measuring a client’s debt-to-income ratio. What is a debt-to-income ratio? Put simply it’s the sum of your monthly payment obligations a potential client has (such as monthly debt payments, credit card charges, and any other financial obligations) divided by their monthly income.


Capital is when your mortgage lender reviews your finances after you close on your new home. It’s split into two parts here – cash tied into the mortgage and cash in reserve.

Cash in reserve: A mortgage lender will be thinking; Does this applicant have a bit of a financial cushion to fall back on if they hit economic troubles unexpectedly? Is the applicant an avid saver or their money over time? Do they have liquid assets that a borrower could access if they needed?

Cash tied into the mortgage: Depending on how much of your own money you put down for your mortgage will affect the strength of the loan application. One thing to consider though is the more money you have after closing, the less likely you are to default on your mortgage. Look at it like this, if there are two borrowers with similar income and credit scores but one has $100,000 after closing and the other has $100 which would you think would get the mortgage quicker? Makes a lot of sense, doesn’t it?


If there is an issue that prevents you from repaying your loan a mortgage lender will look at what collateral you have in your home and any other high-value possessions.

Determining the value of your home is generally done during the appraisal process. An appraisal takes many things into consideration such as; local housing market, location, size of the home, its current condition, the cost to potentially rebuild the home, and even rental income options. It goes without saying that your lender does NOT want you to foreclose (that’s just bad business) but they do need to cover their own hide, in case the payments stop (known as defaulting).


Now let’s talk about your credit score. Unfortunately, most people are afraid of this step and what it means for their home buying process.

Lenders check your credit score and history to assess your history of paying bills and other debts on time (even if you’re not planning to buy a home now it’s always a good idea to maintain good credit). The industry standard for checking your credit score is to use the middle of the three credit score reports from Transunion, Equifax, & Experian. A higher score lets your mortgage lender know that there is very low risk, which means you can get a better rate! The lender will run a credit score early on, to see what loan amount you may or may not be able to afford.

All of the 4 C’s are crucial since they all work in tandem. Let’s say you have strong income ratios and a large down payment, this means you don’t have to worry about your credit rating. On the opposite end a strong credit history and income can overcome a lesser down payment. Everyone’s situation is different but Pacific Funding Mortgage Division makes sure that you can get the home loan you deserve, and at a rock bottom rate. We are on your side, and we’d love to get you into your home now! Start our quick 5-minute application here and start the mortgage process early, before you go house hunting!