How Debt and Assets Affect Loan Approval

Lenders often base loan approval on a borrower’s debt-to-income ratio and credit score. They also review current income, typically through pay stubs and tax forms.


Some lenders may offer preapproval offers, which use a “soft inquiry” to access your credit file and do not impact your scores. This enables you to shop for mortgages with confidence.

Debt Signaling

There are a number of different ways that borrowers can signal their creditworthiness and reduce risk to secure loan approval. These include providing collateral, leveraging debt signaling, and offering additional loan terms. By understanding how these factors affect loan approval, borrowers can increase their chances of securing financing that meets their financial needs.

Collateral and debt signaling are important concepts that play an essential role in the loan approval process. Collateral refers to assets that are pledged as security for a loan, while debt signaling is the practice of demonstrating a borrower’s creditworthiness through their debt-related behavior. Borrowers can use both of these strategies to improve their odds of getting approved for loans and securing favorable loan terms.

Some common forms of collateral include real estate, equipment, inventory, and accounts receivable. However, leveraging collateral can be a risky strategy because it may result in the loss of valuable assets. As a result, it’s important to weigh the risks and benefits of leveraging collateral before making the decision to do so.

Borrowers can also use debt signaling to demonstrate their creditworthiness and reassure lenders that they are responsible with repayments. One way to do this is by making on-time payments. In addition, borrowers can offer referrals from family members and business partners to show that they are reliable and capable of repaying their debts.

Credit Scores

Credit scores help lenders evaluate your creditworthiness – whether you’re likely to pay back what you borrow. They’re based on information from your credit reports, which are kept by credit reporting agencies like Equifax, Experian and TransUnion. The better your credit report is, the higher your score, and the less risk you pose to creditors.

A poor credit history can lead to being denied credit altogether or, at the very least, paying sky-high interest rates if you’re approved for loans and credit cards. That’s why it’s important to keep your credit report up-to-date and your debt levels low.

Some lenders set a minimum credit score that you must meet to be considered for a loan or credit card. A lender can also do what’s called a pre-approval, where it performs a more in-depth assessment of your credit profile and history. This type of evaluation can impact your credit score a bit more than a standard loan application, and it may stay on your report for up to two years.

Some credit card companies, financial institutions and lenders now provide their customers with their credit scores, either on their statement or online. You can also purchase your credit score directly from one of the major credit bureaus. If you’re denied credit or offered less favorable terms than you applied for, the law gives you the right to request the specific reason why from the lender.


Assets are a major component of an individual’s or company’s net worth and include everything that’s currently valuable, or provides an expected future economic benefit. In the case of a person, this includes cash, financial investments, property and even accounts receivable. For businesses, assets may also include machinery, buildings and inventory.

Lenders review the assets of a borrower to verify that they have enough money to cover mortgage payments in the event of a job loss or another setback. For liquid assets like cash, retirement and investment accounts, this usually involves submitting the most recent account statements. For nonphysical assets, such as furniture and some real estate, lenders may request a professional appraisal. Verification of stakes in privately held companies could require corporate documents, board resolutions or shareholder certificates.

When reviewing assets, the lender will focus on those that can be readily converted to cash or other forms of acceptable income. This typically excludes illiquid or speculative investments, which are typically not eligible for mortgage loan approval. In addition, if you have a habit of regularly shifting money from one account to another, this is likely to raise red flags. For this reason, the lender may ask to review two months of deposit and withdrawal documentation to trace deposits and confirm that all of your current assets are listed in your application.


Creditors look at your income and debt payments to make sure you can afford a loan payment. Generally, your debt-to-income ratio is determined by adding up your normal and recurring monthly debt payments, including your monthly mortgage or car payment, minimum credit card and personal loans payments, plus other debts like student loans and financial aid, and then dividing that amount by your monthly income.

The more stable and reliable your income, the better chance you have of loan approval. Most lenders want to see a steady history of employment and income from the same employer, sometimes going back as long as two or three years.

While it’s easier to get a loan on a regular salary, many people live off of commission-based income and can still qualify for a mortgage. Accunet has options for these types of situations and can help guide you through the process. Contact us today to learn more.