Your lender looks at other information besides your credit rating (though the rating is important) in deciding whether to give you a home loan. Lenders look at:
- Employment history, including whether you are self-employed
- Monthly debt payments versus your current income
- Savings patterns and amount of savings
- The type of loan you want
- The value of the property you want to buy or refinance
- The amount of the down payment you plan to put down or the equity that you have in your home already
All of these factors combined make up your loan application profile.
Once this information is collected, the lender evaluates it to decide whether to approve the home loan. Until recently, this was done manually by reviewing each piece of information separately. Today, many lenders use automated underwriting, a computer based process that evaluates the information easily, objectively and within minutes.
The lender then views the electronic recommendations along with other information gathered to create a full picture of your loan application and makes a final decision about your ability and willingness to repay your loan.
Credit ratings and automated underwriting are widely used today because they speed up the mortgage approval process for consumers. What's more, by using credit ratings, mortgage lenders treat each person objectively because the same standards apply to everyone. Credit ratings assess each factor equally for every consumer, every time. Credit ratings do not include race, religion, national origin, or marital status as factors. Thus, credit ratings are blind to demographic or cultural differences among people.
