What Does a Mortgage Lender Look for When You Apply?

What Does a Mortgage Lender Look for When You Apply?

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 whole picture. Know these five before you apply and you walk in ready instead of guessing.

I’m Ken Graczak, Mortgage Broker at CFR Mortgage in Bloomington, MN. NMLS #184394. My mom raised me on her own and never got the chance to buy a home. I think about that every time I sit down with a buyer, because I know what it means to finally get the shot she didn’t have. 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.

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 need to be sourced and seasoned, meaning documented and sitting in your account for a while before closing
• The home you want to buy has to pass review too. Most buyers forget this one entirely

Want 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, Exactly?

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

Score minimums vary by loan type, and this is worth confirming with us directly since guidelines shift. Generally, conventional loans want a higher starting score than FHA, and VA loans lean on lender overlays rather than a hard VA-set minimum. A number that feels low doesn’t mean the conversation is over. We work with buyers across a wide range of credit profiles in the Twin Cities.

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. It doesn’t kill it, but it raises questions that need answers.

If your credit needs work before you apply, read our full breakdown on the credit score you need to buy a home in Bloomington.

How Does a Lender Verify Your Income and Employment?

Lenders don’t take your word for your income. They verify it. And the paperwork 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 sometimes 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 works with the $6,000 number. That actually works in your favor.

Part-time income, overtime, bonus, and commission income can all count, but only with a two-year history of receiving it. Employment gaps get reviewed too. A short gap with a clear explanation looks nothing like 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 your monthly debt obligations, including the proposed housing payment, divided by gross monthly income. Lenders focus most on the back-end number.

Most lenders qualify borrowers using roughly 45% of gross monthly income minus existing debt obligations as the working ceiling. Say your gross income is $6,000 a month and your total monthly debts, including a proposed mortgage payment on a home in the Minneapolis suburbs, come to $2,400. That’s a 40% back-end DTI, which fits comfortably under most program guidelines.

VA loans take 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.

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.

Want a clearer read on your own numbers? The CFPB has a plain-language explainer on debt-to-income ratio worth a look too. Stephanie and I run this calculation for every buyer in the prequalification conversation, so you’ll know exactly where you stand before anyone submits anything.

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 need to be sourced and seasoned. Sourced means the lender can see where the money came from. Seasoned means it’s been sitting in your account for a while, not deposited last week with no paper trail. Plan ahead on this one.

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

Reserves are what’s left in your account after you close, typically one to three months of mortgage payments still sitting there 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. Run your own numbers on our mortgage calculator before you talk to us if you want a head start.

But there’s a catch. Large deposits that show up unexplained raise questions. 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 also checks the condition of the property. A home with major structural problems, roof issues, or habitability concerns won’t get funded until those are resolved.

FHA and VA loans carry additional minimum property requirements beyond market value. Working utilities, no exposed lead-based paint, no major safety hazards. If you’re eyeing an older home or a fixer-upper 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 carry slightly different program requirements. A condo has to be on an approved list for FHA or VA financing.

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 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 credit score 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. Compare the two side by side on our FHA vs conventional breakdown. A bank can’t make that move. We can.

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. Understanding all five before you apply helps you prepare your file and avoid surprises.

What credit score do mortgage lenders require? It depends on the loan type and the lender’s own overlays, which is why this is worth a direct conversation. Conventional, FHA, and VA loans each set their qualifying credit differently, and 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? DTI is your total monthly debt obligations divided by your gross monthly income. Most lenders use roughly 45% of gross monthly income minus existing debt as the qualifying ceiling. VA loans use a residual income approach instead of a hard DTI cap, which gives a more complete picture of financial health.

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 after closing, and down payment funds need to be sourced and seasoned in your account before closing. Gift funds from family are allowed on most loan types with a documented gift letter.

Does the property I want to buy affect whether I get approved? Yes. The home must appraise at or above the purchase price and be in acceptable condition. FHA and VA loans carry additional minimum property requirements beyond market value. 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 that has to catch you off guard.

Stephanie and I review all five factors with every buyer 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.

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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