Buying your first home often starts with one big step: getting pre-approved for a mortgage. But what exactly do lenders care about? What numbers are they looking at — and why?
Understanding how mortgage lenders evaluate your application puts you in a stronger position to qualify and get a great rate. Here’s what matters most.
1. Your Credit Score
Your credit score is one of the biggest factors in determining whether you qualify for a loan — and at what interest rate.
- 740 or higher: Excellent — best rates and lowest fees
- 700–739: Very good — competitive offers
- 660–699: Good — may qualify but with slightly higher rates
- 620–659: Fair — limited options, higher rates
- <620: Challenging — may need FHA or to improve score first
Lenders view your credit score as a measure of risk. The higher your score, the more likely you are to pay on time — which reduces their risk.
2. Debt-to-Income Ratio (DTI)
DTI compares your monthly debt payments to your gross monthly income. It tells lenders how much of your income is already committed to debt.
There are two types:
- Front-end DTI: Housing costs ÷ income (usually capped at 28%)
- Back-end DTI: Total debt ÷ income (usually capped at 36–45%)
If you make $5,000/month and have $2,000 in monthly debt, your back-end DTI is 40%. Lower is better — it shows you can comfortably take on a mortgage.
3. Your Income and Employment
Lenders want to see steady, reliable income. Ideally, you’ve been with the same employer for at least 2 years.
- W-2 employees: Typically need 2 years of tax returns and pay stubs
- Self-employed: Usually need 2 years of tax returns and business documentation
- Part-time, seasonal, or commission income: May require additional proof of consistency
If you’ve recently changed jobs within the same industry, that’s usually fine — but switching careers may require extra documentation.
4. Down Payment and Savings
Lenders check how much you’re putting down and whether you have enough savings to cover closing costs.
- More money down = less risk for the lender
- Lower down payments (3–5%) are still accepted for first-time buyers
They’ll also want to see reserves — money left over after closing. A few months of mortgage payments in your savings account can make a difference.
5. Assets and Bank Statements
You'll be asked to provide recent bank statements to verify your down payment funds and reserves. Lenders want to confirm:
- You have the money you say you do
- You didn’t take out a loan right before applying
- You didn’t receive large unexplained deposits
Gifts from family are allowed in many cases, but they need to be documented with a signed gift letter.
6. Property Type and Appraisal
What you're buying affects approval too. A condo may have different underwriting rules than a single-family home. Investment properties are riskier than primary residences.
Every lender requires a home appraisal to ensure the home is worth what you’re paying. If the appraisal comes in low, you may need to renegotiate or put more money down.
7. Loan Type
Each loan program has different rules. FHA, VA, USDA, and Conventional loans all have their own requirements:
- FHA: More lenient on credit, but requires mortgage insurance
- Conventional: Stricter credit standards but PMI can be removed later
- VA: No down payment, for eligible veterans/military
- USDA: For rural areas, with income caps
Your lender will evaluate which program you qualify for — and which one offers the best deal based on your profile.
How to Improve Your Odds
If you want to look your best to a mortgage lender, focus on:
- Paying down debt to reduce DTI
- Improving your credit score with on-time payments
- Saving for a down payment and having some reserves
- Staying in your job or industry to show income stability
Conclusion
Lenders aren’t just looking for perfect credit. They want to see that you’re financially stable, not overextended, and prepared for the responsibility of homeownership.
As a first-time buyer, understanding these factors helps you avoid surprises and get the best loan possible — so you can focus on finding the home that fits your life.