What Do Local Mortgage Lenders Look For?

When you’re ready to buy a home, one of your biggest decisions is choosing the right lender. And while national lenders and online lenders can be convenient, there’s something to be said for working with a local mortgage lender who understands the nuances of your community, your housing market, and your financial journey.

But what exactly does a local mortgage lender look for when evaluating your loan application?

Whether you’re a first-time homebuyer or looking to refinance, understanding how lenders assess your financial profile can help you prepare and position yourself for success. Let’s break it down.

First Things First: Why Work with a Local Mortgage Lender?

Before we dig into the details of what lenders evaluate, it’s worth taking a moment to understand the benefits of using a local mortgage lender.

1. Personalized Service

With a local lender, you’re more than a file number. You’re a neighbor. Local lenders take the time to get to know you and your financial goals so they can help you find a lender and a loan option that’s right for your situation. That might mean helping you improve your credit before applying or walking you through the different types of home loans available.

2. Local Market Knowledge

A local mortgage lender understands the real estate trends in your area. From neighborhood-specific appraisal standards to local property tax practices, they’re equipped to navigate the process with insight that national lenders may lack.

3. Faster, More Direct Communication

Tired of being bounced between call centers? Local lenders often have accessible loan officers who are available to answer your questions quickly, sometimes even face-to-face. That makes for a smoother experience from application to closing.

What Local Mortgage Lenders Evaluate

Now, let’s take a closer look at what a mortgage lender examines when deciding whether to approve your application and at what interest rate.

1. Your Credit Score and Credit History

This is one of the first things any lender will look at, whether they’re local or not. But a local lender may offer more flexibility when reviewing your full financial picture, especially if there are extenuating circumstances.

Your credit score tells lenders how responsibly you’ve managed debt in the past. The score is calculated using several factors:

• Payment history
• Amounts owed (credit utilization)
• Length of credit history
• Types of credit used
• New credit inquiries

A score above 740 will typically secure you the best interest rates. If your score is below 620, you may still qualify, but expect more scrutiny and potentially higher rates.

In addition to your score, lenders will check for red flags on your credit report, including:

• Accounts in collections
• Charge-offs
• Repossessions
• Foreclosures
• Bankruptcies

These events don’t necessarily disqualify you from a home loan, but they may limit your loan options or raise your interest rate. If you’ve had past credit issues, be upfront and come prepared with documentation to explain your situation.

Tip: Review your credit report for accuracy before applying. One in five Americans has an error on their credit report that could negatively affect their score.

2. Your Income and Employment History

Lenders want to see stable, reliable income. They’ll look at your employment history, pay stubs, tax returns, and any other documentation of income sources. This doesn’t have to be a traditional salary—freelance income, investment returns, disability benefits, and alimony can all count if they’ve been consistent for at least two years. This is important because a steady income shows that you can handle a long-term financial commitment like a mortgage.

3. Your Debt-to-Income Ratio (DTI)

Your debt-to-income ratio compares your total monthly debt payments to your gross monthly income. Lenders use this number to determine how much additional debt you can responsibly take on.

There are two types of DTI:

• Front-end DTI: The percentage of income going toward housing expenses (mortgage, property taxes, insurance).
• Back-end DTI: The percentage going toward all debts (housing, auto loans, credit cards, student loans, etc.).

Most lenders prefer a back-end DTI below 45%, with no more than 28% going toward housing. If your DTI is too high, reducing your current debts can improve your chances of approval.

4. Your Down Payment

The amount of money you put down on your home impacts your loan-to-value (LTV) ratio, which is the percentage of the home’s value that you’re borrowing. A lower LTV usually translates into better loan terms and less risk for the lender.

For example, putting 20% down gives you an 80% LTV, which is ideal. But if you can’t swing 20%, don’t worry. Many loan options, especially those offered by local lenders, accommodate smaller down payments.

Still, lower down payments might require you to carry private mortgage insurance (PMI) or come with slightly higher interest rates. Working with a local lender could potentially help with your down payment, as they may be familiar with regional or state-level down payment assistance programs you didn’t know existed.

The Documents You’ll Need for the Mortgage Process

No matter the lender, documentation is a key part of the process. When applying with a local mortgage lender, it’s common to need:

• Up to two years of tax returns
• Recent pay stubs
• Bank statements
• W-2s or 1099s
• Documentation for additional income sources

Having these documents ready can streamline the process and show the lender that you’re financially prepared and organized, improving your chances for loan approval.

How Local Lenders Compare to National Lenders and Online Options

You might be wondering how all this stacks up to what national or online lenders offer. National lenders can be appealing because of flashy marketing or promises of fast pre-approval. Online lenders often tout digital convenience and quick turnaround times. However, those benefits can come with trade-offs: less personalized service, limited flexibility, and a one-size-fits-all approach.

Local lenders, on the other hand, offer:

• In-person support when you need it
• Customized advice based on your finances and goals
• Direct communication with your loan officer
• Familiarity with local regulations, appraisers, and agents

And that personal touch can make all the difference in a competitive real estate market.

The Bottom Line

A local mortgage lender is looking at the same core criteria as any other lender: credit score, income, debt-to-income ratio, employment history, and down payment. But unlike many national or online lenders, local lenders offer more than just underwriting. They offer partnership. They’re here to guide you through the process with personalized service, a deep understanding of your community, and the flexibility to help you find a lender and a loan that works for you.

At Amplify Credit Union, we believe that buying a home should feel exciting—not overwhelming. That’s why our mortgage team works closely with every borrower to understand their needs, explain their options, and support them from pre-approval to closing day.

This article was first published on May 14, 2021.