A+ Credit Repair & Consultation Can Help You Get Pre-Qualified For a Mortgage!

Although most lenders may have similar programs they may have different underwriting guidelines for mortgage approval.  All mortgage loans are based around four factors: Credit, Income, Assets and Property.

CREDIT
Your credit is one of the most important things that will be considered when determining if you qualify for a home mortgage loan. Your credit history is how a lender will judge the likelihood that you’ll pay them back the money they lent you. A lender will look at the length of your credit history, how reliable and timely you’ve paid on your loan accounts and if you are maxed out on credit cards or loans. These are also the factors that determine your credit rating and Fico score. Your credit score will be used to qualify you for a mortgage loan and will often determine the interest rate you will be offered. Credit scores used for a mortgage loan range between 300 and 850. A good credit score is considered to be above 680-720 and a poor credit score is anything below 620. The higher your credit score, the better the interest rate you’ll likely be offered. For most lenders the minimum score to qualify for a home loan is 580-620. In addition to your credit score, lenders will look at items on your credit report. They want to see that you have at least 3 open trade lines for at least a year and that you don’t have any large outstanding collections, liens or judgments against you. If you have collections or judgments on your credit report, you will usually have to take care of those first before you can get financing or close your loan (the one exception to this is usually medical bills).  The other thing that won’t show up on your credit report but is verified is your rental history. Lenders want to see if you’ve had any late rent or mortgage payments in the past 12 months. Normally most bank/lenders don’t offer mortgage loans to borrowers that have had a mortgage late within the last 12 months or recently filed bankruptcy.

INCOME
A consumer’s employment history is also taken into consideration when applying for a mortgage loan. Most mortgage lenders are looking for sustained employment history for a minimum of at least two years. For those who are self-employed, mortgage lenders will request specific documentation as proof of income and employment. W-2’s and the two most recent years’ tax returns are used to verify your annual gross income. Earned income over the course of two years are averaged to determine eligibility for a loan.

A consumer’s debt-to-income (DTI) ratios are another key aspect of consideration for lenders. Your DTI is determined by your total monthly recurring debt divided by your gross monthly income. That basically means you take the monthly payment amount showing on your credit report for all debts (student loan, credit cards, auto loan, child support,401k loan, timeshare), new mortgage amount, taxes, insurance, homeowners fee if applicable, mortgage insurance if applicable and add them up and then divide that number by your gross monthly income before taxes. Expenses such as utilities, phone, and cable bills are considered variable expenses, which are not calculated in your DTI.  Mortgage lenders typically want to see someone using less than 42% of their DTI. Some lenders go up to 50-55% of a person DTI depending on the program. The lower your DTI the more likely you are going to be approved for the mortgage or loan.

ASSETS
Mortgage lenders verify that the funds you will use for your down payment are in a liquid account like a checking account or savings account. Most lenders require you provide them 2 most recent monthly statements with all pages of any assets you are using for the transaction. Typically most lenders require you to explain any large deposit over $500 that is not your regular pay.  Sometimes programs require in addition to the funds you will use for the down payment, to have a certain amount of cash reserves. Normally they want 2-6 months of reserves depending on the lender. Normally the amount of the reserves are your total monthly obligations or an amount the bank suggested.  This varies from lender to lender and will depend on the type of financing you are trying to get. Reserve requirements are more common if you’re buying an investment property or second home, rather than a primary residence. Reserves can also be required on some refinances as well.

PROPERTY
Lastly mortgage lenders require an appraisal of the mortgage property you are buying to determine if the value of the home is worth the loan they are lending.  An appraised value is an evaluation of a property's value based on a given point in time that is performed by a professional appraiser during the mortgage origination process. The appraiser is usually chosen by the lender but the appraisal is paid for by the borrower.

The appraised value of a home is the key factor in the lenders decision to approve your loan and how much money may be borrowed and under what terms. The appraised value also determines the Loan to Value (LTV). The LTV ratio is a financial term used by lenders to express the ratio of a loan to the value of an asset purchased. The term is commonly used by banks to represent the ratio of the first mortgage lien as a percentage of the total appraised value of real property. Normally when your LTV is over 80% the lender requires Private Mortgage Insurance (PMI). This insurance is paid outside of your mortgage and normally continues for the life of the loan or until your LTV is below 80%.