Banks handle home loans through a structured process involving application review, credit assessment, document verification, loan approval, closing, and post-closing servicing. The bank evaluates the borrower’s credit score, income stability, debt-to-income ratio, and property value to determine loan eligibility and terms. If approved, the bank finalizes the mortgage agreement, appraises the property, and coordinates with a title company or attorney to ensure legal compliance before closing. Post-closing, the bank collects monthly payments, manages escrow accounts for taxes and insurance, and handles delinquencies or defaults through repossession or foreclosure if necessary.

The structured approach ensures banks minimize risk while meeting regulatory standards. Credit scores play a critical role; borrowers with scores above 620 typically qualify for conforming loans with lower interest rates, while those below face higher rates or denial. For example, FICO data shows 76% of U.S. consumers had scores above 600 in 2023, with prime rates averaging 6.5% for borrowers with scores 740+. Down payment requirements also affect eligibility, as 20% equity reduces loan-to-value (LTV) ratios, aligning with Fannie Mae’s conforming loan limits of $765,300 in 2023. Debt-to-income (DTI) ratios under 43% are standard, per Consumer Financial Protection Bureau (CFPB) guidelines, ensuring borrowers can manage payments. Closing costs average $5,000–$15,000 (2–5% of the loan), per Urban Institute research, reflecting title fees, origination charges, and appraisal costs. Loan servicers, regulated by the Federal Reserve, must adhere to strict communication and delinquency protocols, reducing default rates by 30% since 2018 due to improved early intervention strategies. This systematic process balances risk mitigation with accessibility, supporting homeownership while safeguarding institutional interests.