Credit.com’s Chris Birk has a good roundup of those factors. Here are the highlights.
1. Race, Age & Family Status
The law requires that lenders put on blinders with regards to these factors when considering your loan application. It shouldn’t matter if you’re a 21-year-old white woman with two kids, or a 78-year-old Asian man who never married; the loan application should be screened based only on the applicant’s finances and creditworthiness.
That said, a number of banks have gotten into trouble in recent years for allegedly denying standard loans to applicants based on race and location. Earlier this year, the city of Los Angeles sued JPMorgan Chase for allegedly pushing minority loan applicants into riskier and less-affordable mortgages than they were eligible for. Similar allegations have been made against Wells Fargo and Bank of America.
2. Non-Borrower Income
Say you’re looking to buy a house with your spouse or significant other, but only your name will appear on the mortgage. Then it doesn’t matter that the other person plans to contribute to making the payments every month. All that counts is the income of the person borrowing the money from the bank.
While that might seem harsh, it makes sense from the lender’s point of view. That other person’s income might help make the home affordable, but if that spouse, boyfriend/girlfriend, roommate, friend, partner, etc., isn’t willing to put their name to a document legally obliging them to repay the loan, why should the lender consider their income?
The main problem here is for couples where the income of both partners is needed to qualify for a loan, but where one of the two has a credit history that will make it more difficult to get approved.
On the other hand, if one member of a couple can qualify for the mortgage on their own, this means that the lender isn’t looking into their partner’s sketchy credit or employment history.
3. Shopping Around for a Home Loan
One of the reasons it’s a bad idea to apply for something like a credit card in the lead-up to buying a new house is that the credit card company will pull your credit score. Each time this happens, it could result in a small ding to your score. The more cards you apply for, the more damage done to your credit.
And each time you go to get pre-approved for a mortgage, the lender also makes a “hard inquiry” on your credit score. But, unlike the credit card example, these inquiries don’t have the repeat effect when you seek out multiple approvals in the hopes of finding the best offer.
Once a lender pulls your credit, you’ve typically got a two-week window to have others do so without taking a hit to your score. The nation’s three major credit bureaus – Equifax, Experian and TransUnion – will only count that first hard inquiry against you. They’ll chalk up the remainder to due diligence and comparative shopping during that two-week timeframe.
So that first one might slightly ding your credit, but the others should not.