5 Things Lenders Check Before Approving Your Home Loan

By Kandie Frederick

Growing up on the central coast, Kandie is a third generation family in the North County and a second generation family in real estate. Joining Country Real Estate in 2000, and graduating from Cal Poly in San Luis Obispo, she brings a background of Agricultural Business to combine with her knowledge of the local real estate market. Working with her family and their decades of local real estate development, she is deeply connected to the roots of our community and its growth.

Are you preparing to buy a home but worried your loan won’t get approved? Most people think that having a decent credit score and a steady job is enough, but the truth is, the real decision happens in underwriting, which is where every number and every document has to match.

If something looks unclear, the lender pauses the file, asks for proof, or adjusts the terms. This is why it pays to understand what they check before you apply.

To ensure your loan does not get derailed, here are the five things lenders review before approving your home loan, along with the practical moves that help you keep the process smooth.

Credit history and score. Lenders pull your credit report and look at patterns, not just the score on the screen. They want to see consistent on-time payments, reasonable credit card balances, and stable borrowing behavior.

One thing you must avoid is opening a new credit card, financing furniture, or taking on a new car payment while you’re in the middle of the loan process, because those changes can lower your score, increase your monthly debts, and trigger new questions in underwriting.

If you want a clean approval, keep your credit steady from application through closing.

Income you can document. Lenders verify your income to confirm it is real, consistent, and likely to continue, and they qualify you based on what you can prove on paper. If you’re a W-2 employee, this usually means pay stubs and W-2s, and if you’re self-employed, it often means tax returns and supporting documentation. The key point is simple: the lender is not qualifying you on your best month; they are qualifying you on stable, documented income, so the cleaner your documentation is, the fewer delays you’re likely to face.

Debt-to-income ratio (DTI). Your DTI measures how much monthly debt you carry compared to your gross monthly income, and lenders use it to decide whether your new mortgage payment fits your budget. A common federal benchmark used in lending is 43% DTI for the General Qualified Mortgage standard, and while some programs can allow higher in certain cases, limits still apply based on the loan type and guidelines.

For conventional loans that follow Fannie Mae delivery rules, a DTI above 50% is not eligible for delivery when the file is run through Desktop Underwriter, and if the loan is manually underwritten, the general cap is 45%, which is why reducing monthly debt or improving documented income can make a real difference.

Assets, cash to close, and reserves. Lenders verify you have enough funds for the down payment and closing costs, and in some cases, they also require reserves, which means extra money left in your accounts after closing. They also pay close attention to how the money got there, so large deposits and unusual transfers often trigger requests for additional documentation.

If you’re moving money between accounts, keep transfers easy to trace, and if gift funds are part of your plan, follow the lender’s instructions early so the paper trail stays clean.

The property and appraisal. Even if you qualify as a borrower, the home still has to qualify, and the appraisal is a major part of that. The appraisal confirms the value supports the loan amount, and if the value comes in low, the lender may not approve the loan at the same terms, which can lead to renegotiation or a change in plan. Appraisals also have timing rules in conventional lending, and for example, if an appraisal is obtained for a Fannie Mae loan, it must be dated within 12 months of the note date.

Getting approved for a home loan shouldn’t feel confusing. When you understand what lenders look for and you get your paperwork and numbers lined up early, the process stays smoother, and you protect your timeline.

If you’re planning to buy a home soon and you have questions about credit, DTI, cash to close, or what you’ll need for underwriting, feel free to call or text me at (805) 239-9566 or email me at kandie@countryrealestate.com. I can help map out your next steps and connect you with a lender who fits your situation.