What do lenders look for in borrowers?
I'm shopping for my first home, and looking at various lenders and what they have to offer. But what are they looking for in me, the borrower?
- Lenders double check self-employed income.
If you're self-employed and shopping for a mortgage, your lender may be contacting the Internal Revenue Service - directly. In the past, self-employed applicants have often had to produce copies of tax returns to back up income stated in the loan application. Now, however, lenders can compare income claimed on the loan application to the amount on the tax forms filed with the IRS.
- Lenders try to predict credit problems.
Some mortgage lenders have added a follow-up credit check on borrowers after they have closed on a loan. Similar to credit scoring now used in deciding whether to make the loan, the new default-risk scoring evaluates the likelihood a borrower may default on the loan. The score indicates, for each mortgagee, whether a delinquency would likely become a default. Then a lender can decide what action to take, if any, if and when payments fall behind.
- Lenders can help high-risk borrowers.
For a high-risk borrower, a lender can intervene early and provide credit counseling, short-term payment modifications or other measures to help prevent foreclosure. On the other hand, a lender may opt to give a high-risk borrower less leeway in time of financial crisis.