Which factor often requires a lender to conduct additional risk assessment during a mortgage application?

A low credit score is a significant indicator of a borrower's creditworthiness and financial reliability. Lenders typically utilize credit scores to assess the likelihood of a borrower defaulting on their mortgage obligations. A low credit score suggests that the borrower may have a history of financial mismanagement, missed payments, or other credit-related issues. As a result, lenders may view this as an elevated risk, prompting them to conduct additional risk assessments to understand the underlying reasons for the low score, determine the potential for future repayment issues, and decide whether to approve the application or potentially require additional safeguards, such as a higher interest rate or more stringent loan terms.

In contrast, stable employment, high income, and a large down payment are generally seen as positive factors that can reduce risk from the lender's perspective. Stable employment and high income signify that the borrower has a reliable source of funds to make mortgage payments, while a large down payment demonstrates financial commitment and lowers the loan-to-value ratio, thereby reducing the lender's risk exposure.