Getting Loan-Ready: What You Need to Know Before You Borrow

For a lot of people, the idea of applying for a loan can feel a little like walking into a test they haven’t studied for. There are terms being thrown around — loan to value, debt to income, credit score — and a sense that everyone in the room already understands something that was never quite explained.

Here’s the good news: those three factors aren’t as mysterious as they seem. And with a little understanding and the right plan, becoming loan-ready is more achievable than most people think.

The Three Things Every Lender Looks At

When someone applies for a loan — a mortgage, a car loan, a personal loan — lenders are evaluating three core components, and each one tells a different part of the story.

Loan to Value (LTV)

This measures how much you’re borrowing compared to what the asset is actually worth. If you’re buying a $200,000 home and putting $20,000 down, you’re borrowing $180,000 — that’s a 90% LTV.

What lenders look for: The lower your LTV, the less risk a lender is taking on, which typically means better terms for you. A down payment of at least 20% on a home, for example, puts you in a strong position.

Tip: The more you can save before you borrow, the better. Even a little extra toward a down payment can meaningfully change what you qualify for.

Debt to Income (DTI)

This is the percentage of your monthly income that is already committed to existing debt — things like a car payment, student loans, or credit card minimums. If you bring home $4,000 a month and $1,800 is already going out the door in payments, your DTI is 45%.

What lenders look for: Most financial institutions want to see a DTI below 40%. It tells them you have enough breathing room to take on a new monthly payment without being stretched too thin.

Tip: Before applying for a loan, take a hard look at what you’re already paying each month. Paying down a small balance or two beforehand can shift your DTI meaningfully.

Credit Score and Credit History

Think of your credit score as your financial report card — a number between 300 and 850 that tells lenders how reliably you’ve handled borrowed money in the past. Two people applying for the same loan can end up with very different interest rates, or very different outcomes altogether, based on this number alone.

What lenders look for: The higher the score, the better the rates and opportunities available. Over the life of a loan, even a modest difference in interest rate can add up to thousands of dollars.

Tip: Your score isn’t fixed. With consistent, intentional habits it can be improved — and the section below is a good place to start.

Building Credit: It’s Not About Going Into Debt

One of the most common misunderstandings about credit is that building it means borrowing more than you should. It doesn’t. Building credit is really about demonstrating responsible financial behavior consistently over time — and there are practical, low-risk ways to do exactly that.

A great starting point is applying for a credit card with a modest limit. The limit itself doesn’t matter nearly as much as how it’s managed. Here are five principles that make a real difference:

1. Only charge what you can afford to pay back. Before putting something on a card, ask yourself: do I have this money in my account right now? If the answer is no, it’s worth pausing.
2. Pay your balance in full each month. This avoids interest charges and builds a strong payment history — one of the biggest factors in your score.
3. Keep your balance below 30% of your limit. If your card limit is $500, try not to carry more than $150 on it at any given time. This is called credit utilization and it matters more than most people realize.
4. Plan, don’t impulse-spend. Credit works best when it’s intentional, not a reflex when you’re standing at the register.
5. Diversify over time. A healthy mix of credit types — a credit card, an auto loan, a mortgage — reflects a more complete financial picture and can strengthen your score over the long term.

The bottom line? Credit is a tool. Like any tool, it works best when it’s used with intention and put back in the drawer when the job is done.

Are You New to the U.S. Financial System?

Quick note. Not every financial institution offers ITIN products and services like lending and opening bank accounts.

For individuals and families who are newer to how financial systems work in the United States, the learning curve can feel steep — and that’s completely understandable. The system here operates differently than in many other countries, and some of the tools and options available aren’t widely known or talked about.

One of those tools is ITIN lending. An ITIN, or Individual Taxpayer Identification Number, is issued by the IRS to individuals who don’t have a Social Security number but are required to file taxes — including many immigrants and non-citizen residents. What many people don’t know is that some financial institutions, including credit unions, will accept an ITIN in place of a Social Security number when applying for certain loans. That means homeownership, auto loans, and other major financial milestones may be within reach even before permanent residency or citizenship is established. It’s one of the most underutilized pathways in personal finance, and one worth knowing about.

Beyond that, credit history doesn’t transfer from another country, and the rules aren’t always intuitive. The most important first step is simply understanding how credit works here and why it matters — then committing to building it deliberately. Starting with a secured credit card or a credit-builder loan are both solid entry points. The goal isn’t to take on debt; it’s to establish a track record. Once that foundation is in place, doors begin to open. Another tool is to consult with a financial counselor, where available. Individuals and families can receive financial orientation on credit and lending as well.

Your financial journey. Let’s go!

More Than a Number

What sets Everence Federal Credit Union apart isn’t just the range of products available — it’s the philosophy behind them. The process doesn’t begin and end with whether someone qualifies today. It begins with listening.

When someone comes in who isn’t quite loan-ready yet, the goal is to understand their full financial picture, provide the tools to help them make informed decisions, and walk alongside them until they’re in the strongest position possible. That might mean connecting them with financial education resources, mapping out a credit-building plan, or simply having an honest conversation about what the next steps look like.

A big part of that work also happens beyond the branch — through seminars, webinars, and financial education programs offered to churches, nonprofits, and community organizations across the Valley. The team at Everence Federal Credit Union is committed to making sure that when someone is ready to purchase a home, a car, or make any other major financial move, they have the best opportunity possible to qualify — and to qualify well.

Whether someone is just beginning to think about their credit or is actively preparing for a major purchase, the most important step is the same: start the conversation.

Connect with Byron Pellecer and learn more about what Everence Federal Credit Union can offer by visiting his advisor page or exploring the full range of services at Everence Federal Credit Union. You can also reach the Harrisonburg office directly at 540-437-0672.

Listen to the full interview here: