Quick answer
Lenders look at three main things. Capacity is whether your income can handle the payment along with your other debts. Collateral is whether the home is worth what you’re borrowing against it. Credit is how you have handled debt in the past, shown by your payment history and scores. At the pre-approval stage, the home is usually unknown, so collateral gets checked later with an appraisal.
Rules on this page were checked on against CFPB guidance and Valor Mortgage’s guides. Program terms are subject to agency and lender guidelines and may change, and individual lenders can set stricter rules.
The three things lenders look for
Transcript: All right, there's three factors that we look for when we get you pre-approved. One of them is your capacity, capacity to be able to purchase. What is your monthly income, and allow you to be able to purchase. The next item we're looking at is collateral. The house that you're buying, does it value what we're anticipating that you're borrowing for? And the third item, the big C, is credit. We're going to look at your credit and determine your past payment history. Is it substantial enough to be able to issue you credit for your mortgage? If you have more questions about your pre-approval, feel free to give us a call. That way when you buy, you buy with confidence and you buy with Valor.
What goes into each factor?
| Factor | The question | What a lender checks | Learn more |
|---|---|---|---|
| Capacity | Can you afford the payment? | Income, job history, debts and your debt-to-income ratio | How much house you can afford |
| Collateral | Is the home worth the loan? | Appraised value, condition and loan-to-value | Home appraisals |
| Credit | How have you handled debt? | Scores, payment history, collections, past bankruptcy or foreclosure | Credit score by program |
General information. Requirements vary by program and lender, and meeting one factor doesn’t by itself mean a loan will be approved.
Can one strength make up for a weakness?
Sometimes. Lenders call these compensating factors. Between a 580 and a 620 score, Christopher says lenders may want to see strengths such as reserves in the bank, along with a reason the score is where it is. A larger down payment also lowers the loan-to-value, which can reduce risk on the collateral side.
Each factor can also stop a loan alone. A borrower with strong income can still fall short on debt-to-income. On WSGI’s One Street Over, Christopher talks about someone who has the income but also has too much debt. Hear it from 30:18 in the episode.
When is each factor checked?
- Prequalification: a rough look at what you say about your income, debts and credit.
- Preapproval: your credit is pulled and your income and asset documents are reviewed.
- Under contract: the home is appraised and underwriting verifies everything, including whether anything has changed.
What about the money in your bank account?
Assets matter too, even though they aren’t one of the three factors Christopher names in the video. Lenders look at them alongside your income, because a borrower with savings has more room if something goes wrong. You’ll need to show the funds for your down payment and closing costs, and some programs or files call for reserves after closing. That’s why lenders ask for bank statements and may ask about large deposits.
Lender review FAQ
Which factor matters most?
None of them works alone. A lender needs all three to fit the program, though a weakness in one may be offset by strength in another in some cases.
What is a good debt-to-income ratio?
It depends on the loan. Lenders commonly allow about 41% to 50%, depending on the program, the rest of your file and the lender.
What if the home appraises low?
The value affects how much a lender will lend. You may be able to renegotiate, bring more cash or walk away, depending on your contract. See our appraisal guide.
Where these rules come from
| Rule or figure | Source | As of |
|---|---|---|
| Debt-to-income ratio | CFPB, what is a debt-to-income ratio | Nov 5, 2026 |
| Loan-to-value ratio | CFPB, loan-to-value ratio | Nov 5, 2026 |
| FICO score factors | myFICO, what’s in your credit score | Nov 5, 2026 |
Related answers and guides
- What’s the difference between prequalification and preapproval?
- How long does it take to get pre-approved?
- What does loan-to-value mean?
- More answers on getting pre-approved.
- About Christopher Armantrout.
Call me at (615) 671-9178. That’s the fastest way to get a straight answer on what you’d qualify for and how your capacity and credit would look.
If it’s after hours, grab a time on my calendar. Pick a slot that works and I’ll call you then.
If your life is too chaotic for a phone call right now — I understand — start an application and I’ll review it and reach out with a plan.
Valor Mortgage, LLC · Christopher Armantrout, Mortgage Loan Originator, NMLS #1210804 · Valor Mortgage, LLC is powered by Encore Lending Group, LLC, NMLS #1249911 · Licensed in Tennessee · Equal Housing Opportunity
724 S Main St, Springfield, TN 37172 · (615) 671-9178 · christopher@valor.mortgage · NMLS Consumer Access
The dollar figures on this page are illustrative examples for general information only and are not an offer, a rate quote, or a commitment to lend. Actual interest rates and APRs vary based on loan program, borrower qualifications, property, market conditions and other factors. Program fees, limits and terms are set by the agencies named above and change without notice; all loans are subject to credit approval, income verification and property appraisal. Not all applicants will qualify.