What Does a Mortgage Lender Look for When You Apply?

May 31, 2026
Ken Graczak
Mortgage News

What Does a Mortgage Lender Look for When You Apply — and How Do You Prepare?

When a mortgage lender reviews your application they’re looking at five things: your credit, your income, your employment history, your assets, and the property you want to buy. That’s the complete picture. Understanding each one before you apply puts you in a much stronger position when that conversation starts.

I’m Ken Graczak, Mortgage Broker at CFR Mortgage in Bloomington, MN. NMLS #184394. Stephanie and I walk through all five of these factors with every buyer before anyone pulls a hard credit check or submits a formal application. No surprises. No scrambling. Just a clear picture of where you stand.

What You Need to Know

Lenders review five factors: credit, income, employment, assets, and the property itself
Your credit score is the starting point, not the finish line. What’s behind it matters just as much.
Lenders use your gross income for qualifying, not your take-home pay. That distinction changes the numbers.
Down payment funds must be sourced and seasoned, typically in your account for at least 60 days.
The home you want to buy has to pass review too. Most buyers focus entirely on their own file and forget this.

Ready to see where your file stands before you apply? We’re happy to look at your situation first.

What Does a Mortgage Lender Look for — The Five Things That Matter

Lenders look at credit, income, employment, assets, and the property. Every loan application gets reviewed through all five lenses. A strong showing in one area can sometimes offset a weaker showing in another. But all five get reviewed. Every time.

Here’s what each one actually means.

What Does Your Credit Score and Credit History Tell a Lender?

Your credit score opens the door. Your credit history tells the lender what kind of borrower you’ve been.

Here’s how the score minimums break down by loan type in 2026. Conventional loans typically require a minimum 620. The best rates go to borrowers at 740 and above. FHA loans are available starting at 580 with 3.5% down, or as low as 500 with 10% down. VA loans have no VA-set minimum, but most lenders set their own requirements around 580 to 620. Stephanie and I work with buyers across a range of credit profiles in the Twin Cities, so a number below 740 doesn’t mean the conversation is over.

A lender pulls all three credit bureaus, Equifax, Experian, and TransUnion, and uses the middle score. Not the highest. Not the average. The middle one. So if your scores are 680, 695, and 720, the lender is working with 695.

Beyond the score, lenders look at payment history, credit utilization, length of credit history, types of credit, and recent inquiries. One missed payment in the past 12 months can complicate a file significantly. It doesn’t kill it, but it raises questions that need answers.

If your credit needs work before you apply, we have a full post on exactly how to improve it.

How Does a Lender Verify Your Income and Employment?

Lenders don’t take your word for your income. They verify it. And the documentation they need depends on how you earn it.

If you’re a W-2 employee, plan to provide two years of W-2s, two months of recent pay stubs, and current employment verification. If you’re self-employed, the list is longer: two years of personal and business tax returns, a year-to-date profit and loss statement, and in some cases a CPA letter confirming your business is active.

Here’s the part that surprises a lot of buyers: lenders use gross income before taxes, not your take-home pay. If you bring home $4,500 a month but your gross is $6,000, the lender is working with the $6,000 number when calculating your debt-to-income ratio. That actually works in your favor.

Part-time income, overtime, bonus, and commission income can all count but only if you have a two-year history of receiving it. Employment gaps also get reviewed. A short gap with a clear explanation is very different from a pattern of instability. One conversation usually clears that up.

What Is Debt-to-Income Ratio and Why Does It Matter?

DTI is the number that tells a lender how much of your income is already committed to debt. It’s calculated two ways.

Front-end DTI is your proposed housing payment divided by your gross monthly income. Back-end DTI is all of your monthly debt obligations, including the proposed housing payment, divided by gross monthly income. Lenders focus most on the back-end number.

Here’s a simple example using Twin Cities numbers. If your gross income is $6,000 per month and your total monthly debts including the proposed mortgage payment on a $400,000 home in the Minneapolis suburbs come to $2,400, your back-end DTI is 40%. That passes most program requirements in 2026.

Conventional loans typically want back-end DTI at 45% or below. Some go to 50% with strong compensating factors. FHA allows up to 43% as a standard guideline with room for exceptions up to 57% in some cases. VA loans use a different approach entirely. Instead of a hard DTI cap, VA looks at residual income, the money left over after all debts are paid. It’s actually a more complete picture of financial health than a single percentage.

Stephanie and I run this calculation for every buyer in the prequalification conversation. You’ll know exactly where you stand before anyone submits anything.

This is an estimate for illustration only. Actual rates, payments, and eligibility vary based on your credit score, loan type, down payment, and current market conditions.

What Assets Does a Lender Need to See Before Approving Your Loan?

Assets cover three things: your down payment, your closing costs, and your reserves.

Down payment funds must be sourced and seasoned. Sourced means the lender can see where the money came from. Seasoned means it’s been in your account for at least 60 days in most cases. A large deposit that appeared last week without explanation raises questions. Plan ahead.

Gift funds from a family member are allowed on conventional and FHA loans. They just need to be documented with a gift letter confirming the money is a gift, not a loan. If you’re planning to use gift funds, let us know early. It changes how we document the file.

Reserves are what’s left in your account after you close. Most programs want to see one to three months of mortgage payments still sitting in your account after the down payment and closing costs are paid. In Minnesota, closing costs typically run 2% to 5% of the loan amount, so budget for both when you’re calculating what you need. Retirement accounts can count toward reserves at 60% to 70% of their value due to early withdrawal penalties.

One thing that trips buyers up: large deposits. Anything over roughly 25% to 50% of your monthly income that appears in your bank statement needs to be explained and documented. If your aunt gave you $3,000 for your birthday, that’s fine. We just need the paper trail.

What Does the Lender Check About the Property Itself?

This is the section most buyers forget entirely. They spend so much time preparing their own file that they don’t think about the home having to pass review too.

The home must appraise at or above the purchase price. If it doesn’t, there’s a gap to work through. The lender will also check the condition of the property. A home with major structural problems, roof issues, or habitability concerns won’t get funded until those issues are resolved.

FHA and VA loans have additional minimum property requirements beyond market value. Things like working utilities, no exposed lead-based paint, no major safety hazards. If you’re buying an older home or a fixer-upper in Bloomington or anywhere in the Twin Cities, those requirements are worth knowing before you fall in love with the listing.

Property type matters too. Single family homes, condos, townhomes, and multi-unit properties all have slightly different program requirements. A condo has to be on an approved list for FHA or VA financing. These aren’t dealbreakers, but they’re worth knowing upfront.

How Does Working With a Broker Change the Application Review?

Here’s the real difference between working with a broker and walking into a bank.

A bank loan officer reviews the same five factors. But they can only offer one set of program guidelines. If your file doesn’t fit that bank’s criteria, the answer is no. As an independent mortgage broker, I review the same five factors and then match your specific profile across multiple wholesale lenders, each with slightly different guidelines on DTI limits, credit overlays, and asset requirements.

That flexibility is the broker advantage. A lower credit score that one lender won’t touch may work fine with another. A DTI that’s tight for a conventional loan may clear easily with a VA or FHA program. A bank can’t make that move. We can. Here’s a look at the loan programs we work with.

Questions We Hear a Lot

What does a mortgage lender look for when you apply? Mortgage lenders review five things: your credit score and credit history, your income and employment, your debt-to-income ratio, your assets and reserves, and the property you want to buy. Each factor affects your eligibility and the loan programs available to you. Understanding all five before you apply helps you prepare your file and avoid surprises at the wrong moment.

What credit score do mortgage lenders require? It depends on the loan type. Conventional loans typically require a minimum 620 credit score with the best rates going to borrowers at 740 and above. FHA loans are available starting at 580 with 3.5% down. VA loans have no VA-set minimum though most lenders set their own requirements around 580 to 620. Ken Graczak at CFR Mortgage works with buyers across a range of credit profiles in the Twin Cities.

What income documents does a mortgage lender need? W-2 employees typically need two years of W-2s, two months of recent pay stubs, and current employment verification. Self-employed borrowers typically need two years of personal and business tax returns and a year-to-date profit and loss statement. Lenders use gross income before taxes, not take-home pay, when calculating your debt-to-income ratio.

What is debt-to-income ratio and what does a lender want to see? Debt-to-income ratio is your total monthly debt obligations divided by your gross monthly income. Conventional loans typically want a back-end DTI of 45% or below. FHA loans allow up to 43% as a standard guideline with room for exceptions. VA loans use a residual income approach rather than a hard DTI cap, which gives a more complete picture of financial health. Ken Graczak reviews your DTI in the prequalification conversation so you know exactly where you stand before applying.

How much money do I need in the bank to get approved for a mortgage? You need enough for the down payment, closing costs, and reserves. In Minnesota closing costs typically run 2% to 5% of the loan amount. Reserves are funds remaining in your account after closing, typically one to three months of mortgage payments depending on the loan program. Down payment funds must be sourced and in your account for at least 60 days in most cases. Gift funds from family members are allowed on most loan types with a gift letter documenting the source.

Does the property I want to buy affect whether I get approved? Yes. The home must appraise at or above the purchase price and must be in acceptable condition. Lenders will not fund a loan on a home with major structural or habitability issues. FHA and VA loans have additional minimum property requirements beyond market value. The property type, single family, condo, townhome, or multi-unit, also affects which loan programs apply.

You Don’t Have to Walk In Blind.

I’ve sat across from buyers who were surprised by something on their credit report, a gap in employment history, or a large deposit they forgot to document. None of those things have to catch you off guard.

Stephanie and I review all five factors with every buyer in the prequalification conversation before anyone pulls a hard credit check or submits a formal application. You leave that call knowing exactly where your file stands, what programs fit your situation, and what to clean up before you apply.

No pressure. No commitment. Just clarity on where you stand.

Apply Online | Book a Call

Information is for educational purposes only and is not a commitment to lend. Rates, terms, and eligibility vary by borrower and program. All loans are subject to approval. Equal Housing Lender.

Written by Ken Graczak, Mortgage Broker | NMLS #184394 | CFR Mortgage | Bloomington, MN