What Do Mortgage Lenders Look For?

Buying a home involves a lot of moving parts, and understanding the mortgage process is a key step in preparing for your purchase. Mortgage lenders are required by law to assess your ability to repay, or ATR, based on credit and financial factors, including credit history, debt, employment and income. Here, we’ll walk through each one, explain why it matters and share tips to put your best foot forward.

1. Credit score

Your credit score is a three-digit rating that gives a mortgage lender a sense of your creditworthiness, or your ability to utilize and manage debt. It takes into account your payment history, your balances, the length of your credit history, your mix of credit (such as credit cards and installment loans) and any new or recent credit applications.

Why it matters

A higher credit score suggests you’re a dependable borrower, so there’s less risk to the lender in offering you a loan. That could mean you qualify for a lower interest rate compared to a borrower with a lower score. (A lower score may not make you ineligible for a loan, but it could mean a higher interest rate.) A lower rate could save you thousands of dollars over the life of your mortgage. 

How to improve your standing

• Build your history: If you’ve never had a credit card or loan, you’ll need to create a credit history. One way to do that is by reporting your rent payments to the credit bureaus — Zillow can help with that.
• Pay every bill on time: Your payment history is the single most important factor in your credit score. Set up automatic payments or reminders to ensure you never miss a payment.
• Keep credit card balances low: To maintain a higher credit score, it’s a good idea to keep your credit utilization to less than 10% of your limit, according to FICO. That may not be feasible for your situation, though. Generally, aim to use less than 30% of your available credit for each card. If you have a $10,000 limit, for instance, try to keep your balance below $3,000. 
• Don't open unnecessary credit cards or loans: Each time you apply for new credit, the application triggers a "hard inquiry," which temporarily lowers your score. In the months leading up to your mortgage application, avoid opening new cards or taking out other loans.

2. Credit history

While your credit score is the summary of your creditworthiness, your credit history tells the full story. Mortgage lenders review your credit report to see the types of credit you’ve used, like credit cards, auto loans or student loans; the age of your accounts; and your payment patterns over time.

Why it matters

Your credit history provides important context for lenders. A consistent history of on-time payments demonstrates financial responsibility. Late payments, collections or bankruptcies can be red flags, but a single mistake from years ago is less concerning than recent or repeated issues.

How to improve your standing

• Review your credit report: You can get free copies of your credit report weekly from each of the three major bureaus (Equifax, Experian and TransUnion). Check for errors, such as incorrect contact information or erroneous late payments, and dispute any inaccuracies you find right away.
• Keep old accounts open: The age of your credit accounts matters. Even if you don’t use an old credit card much, keeping it open can help lengthen your credit history and improve your score.
• Address negative items: If you have any accounts in collections, work to resolve them. While they will remain on your report for a time, a “paid” status looks much better to a lender than an outstanding debt.

3. Employment and income

As part of evaluating ability to repay, mortgage lenders review your employment situation and income — specifically how long you’ve been working, whether your income is consistent or variable and whether your situation is “expected to continue” or “likely to continue.” Frequent job changes or gaps in employment may raise questions, but that may be overcome by including a mortgage explanation letter in your application.

Why it matters

Your job and income informs how much mortgage you can afford, as well as whether you can reasonably pay back the loan. Generally, lenders look for at least two years of work history, preferably in the same job or field. This show of stable employment indicates you’ll likely have income to continue repaying the loan over time.

How to improve your standing

• Gather proof of work and income: Be prepared to provide your lender with the past two years of W-2s and tax returns, along with pay stubs from at least the past 60 days. If you're self-employed, have profit and loss statements and other business documentation on hand, too.
• Stay at your job if possible: You may jeopardize your loan application if you leave your job without another one lined up. If you’re planning to buy a home soon, it may be wise to stay in your current job or industry instead of making a major career change. If you get a new job, be prepared to provide your lender with a signed offer letter that includes your rate of pay.
• Weigh other income sources: Aside from employment income, you may be able to include other income sources that are likely to continue, such as disability payments, rental income or spousal support. This additional income may help you qualify for a larger loan. Talk to your loan officer to see what types of income are eligible for your situation.

4. Debt ratios

Mortgage lenders also scrutinize your ability to repay using front-end and back-end debt ratios. The front-end ratio, or housing ratio, is the percentage of your gross monthly income spent on the proposed mortgage payment. The back-end ratio, or debt-to-income (DTI) ratio, is the percentage of your gross monthly income spent on both the mortgage payment and any other debt payments. This includes car loans, student loans, personal loans and credit cards.

Why it matters

Debt ratios, especially DTI, are crucial metrics for lenders because they indicate whether you can comfortably handle a mortgage payment on top of your other financial obligations. The lower the ratios, the lower the risk to the lender. If your ratios are too high, you may not qualify for enough money for the home you want, or a loan at all.

How to improve your standing

• Pay down debt: The most direct way to lower your DTI is to reduce your debt. Focus on paying down installment loans first, but take note of the repayment timelines — generally, if you have 10 or less payments left on a loan, it won’t factor into your DTI.
• Avoid new debt: Do your best not to take out any new loans or make large purchases on credit during the home-buying process. A new car loan, for instance, could significantly increase your DTI and put your loan approval at risk.
• Increase your income: While not always easy, boosting your income through a raise, side hustle or part-time work can also help lower your DTI ratio. Remember: The income has to be documented and likely to continue.

5. Savings and other assets

Most mortgages require a down payment and closing costs. Depending on your situation, your lender may require cash reserves, as well. To confirm you have these funds, lenders look at your savings and other assets, such as brokerage or retirement accounts.

Why it matters

Your ability to save helps demonstrate financial discipline, which is a likely indicator you’ll be disciplined when repaying your mortgage. Savings also provide a buffer for emergencies. It’s especially important to have savings or additional assets if you don’t have traditional income.

How to improve your standing

• Plan to save: In a 2025 Zillow survey, 52% of prospective buyers who intend to finance with a mortgage say they had to pause or delay the mortgage process at least once to save up enough for a down payment. If possible, start saving for a down payment sooner rather than later. You may want to create a dedicated savings account and set up automatic deposits to make things easier. Don’t forget: Depending on your location and income, you may also qualify for down payment assistance. Check with your state’s housing finance agency or a loan officer to see if you’re eligible.
• Gather proof of assets: Most lenders look for at least two months of bank statements for all of your accounts (checking and savings), as well as brokerage statements.
• Document gift funds: If someone is giving you money for a down payment, make sure you have a gift letter, a signed document from the giver stating that the money is a gift, not a loan that has to be repaid.

Your path to homeownership

Preparing for a mortgage is a marathon, not a sprint. By focusing on these key areas lenders look at, you can move toward your homeownership goals with confidence.

When you’re ready to make moves, explore our mortgage options with us at Zillow Home Loans.*

*Zillow Home Loans; an equal housing lender. NMLS #10287