Although some people might opt to pay for their new home in cash, most people will seek a mortgage loan to finance their home.

Obtaining a home loan is a big deal, and even if you’ve been through the process before, you might not be aware of everything a lender must consider before approval. Here’s a breakdown of what your lender will look at and how it might factor into your loan amount. It’s best to know this information before you apply for a loan so you can be in a good position to receive the loan you deserve.

Credit report

The first part of your application most lenders will look at first is your credit report and any potential red flags, such as a declaration of bankruptcy. Your credit score is based on a few different categories, and while the number they see holds some weight, it doesn’t always fully reflect your credit and how reliable you would be with a loan.

So if you have a low score, don’t panic. You could still be approved when lenders look at what’s behind the number. Here’s how you can improve your credit report.

Credit utilization

Lenders want to know how much of your credit limit you’re currently using. They’ll calculate this by dividing the total amount of your revolving credit by what you currently owe. So if you have a combined credit limit of $10,000 and you owe $5,000, your utilization rate is 50 percent. Generally, a desirable credit utilization rate is below 30 percent, so plan to keep your utilization as low as possible. However, you don’t want it to be at 0 percent because lenders may think you’re afraid to use your credit.

 Length of credit

This point is self-explanatory—the longer you’ve had credit, the better. Length of credit can be difficult for young buyers or first-time homebuyers, because private lenders generally look at a minimum of five years of credit history. There isn’t much to do about length except continue to build good credit and consult your financial advisor for advice on optimizing your report.

Applications

The number of hard inquiries to your credit can work against your application. Try to go six months to a year without a significant credit inquiry to keep this factor in good standing. If you space your new credit inquiries out enough, there should be no problem. However, if you have a large number of card applications within a few months, this can indicate financial trouble to lenders.

Payment history

Make sure you pay your bills on time. If you miss a payment, lenders will be less likely to trust you with their money. If you do miss a payment, consider sending a letter to the lender explaining the situation and how you reconciled it. Missing payments don’t account for situations such as losing a job during COVID-19, so be sure to give your best explanation if you’ve previously missed a credit or rent payment within reason.

Being an authorized user

If your name is attached to someone else’s credit card, such as a spouse or family member, it can show on your credit report. Whoever is the primary account holder is responsible for the activity on the card, but their choices will reflect on your score, too, so be sure they are on top of their payments. This isn’t a big factor since most lenders only look at the accounts where you are the primary user. Regardless, it’s still smart to check on your authorized accounts.

 Dispute statements

Current credit report disputes can slow down the underwriting process for a mortgage and change your true credit report, so most lenders won’t even consider your application if there’s an active dispute. Take care of your dispute first before applying to save yourself the time, effort, and inquiry hit to your score.

Income

Most people think that they need to make a lot of money to purchase their dream home, but your income isn’t as significant as you might think. Lenders will consider your gross income from work, along with investments from the past few years, so have your financial statements in order beforehand.

Intuitively, the more money you make the better, but it’s mostly about your income stability and debt to income ratio (DTI). Your DTI is calculated by dividing your total monthly debt payments by your gross monthly income. The lower your DTI the better, because this proves you have the extra income after your current payments to take on the responsibility of new loan payments. A solid ratio is considered 28 percent or lower. Some loans allow up to a 50 percent ratio, but the loan amount will be significantly less. Considering this, pay your obligations as soon as possible to free up extra monthly income for a potential home loan.

 Assets

The last consideration for lenders will be your assets. Checking accounts, stocks, CDs, and the like will be considered. High-value items, such as cars you fully own, can make you appear less risky since this implies you can manage a large down payment if needed. Additionally, you have assets to sell if you were to lose your job.

Whether it’s your first of fifth time working with a lender, home loan applications can be scary. But if you take these factors into consideration, you can prepare to receive the best loan possible for your dream home!