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Getting a Lender to Say Yes in Today's Market! |
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Written by WendyPolisi
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Thursday, 10 September 2009 |
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While most people know that a good credit rating is an important part of being approved for a mortgage loan there are other things that a lender looks at when making the loan decision. When deciding whether or not to approve a mortgage the lender looks at several elements; the credit report is only part of the data they review. For this reason mortgage applicants are required to furnish information that a lender cannot obtain by themselves.
by WendyPolisi
While most people know that a good credit rating is an important part of being approved for a mortgage loan there are other things that a lender looks at when making the loan decision. When deciding whether or not to approve a mortgage the lender looks at several elements; the credit report is only part of the data they review. For this reason mortgage applicants are required to furnish information that a lender cannot obtain by themselves.
One of these important elements is the debt to income ratio. The ratio is a look at the applicants monthly debt and expenses as a function of net income. Comparing current debt load with income gives a lender a good idea how much more debt can be handled. For this purpose applicants will need to bring in tax returns and check stubs and any other financial documentation to substantiate statements of income. Ideally, an applicants debt ratio would be about 1.3, in other words there is 30% more income than the applicant needs to pay his monthly debts and expenses.
An applicants payment history is also a key element of the application, lenders look very specifically for late payments. Lenders view a habit of making on-time payments very favorably. While payment history information is part of the credit report, a mortgage lender weights this information differently than the credit bureau reporting FICO scores. Because of this mortgage lenders study the applicants credit report to find all the information possible about an applicants payment habits. If there are habitually late payments showing on a credit report it is a good idea to attach a letter of explanation to the loan application.
Mortgage lenders also look at the applicants other assets besides his regular income to determine if the applicant has the means of making an equity investment, or down payment. If the client has large additional assets and they are fairly liquid " like a large stock portfolio " this may help offset other factors, such as a less than optimal debt ratio. If the applicant has enough additional assets to make mortgage payments outside of his regular income, this is viewed favorably by most lenders. This information is usually not included in a credit report and is why a mortgage lender will ask for statements from the applicants brokerage accounts and retirement accounts (IRAs, 401(k), etc.).
Another factor that lenders take into account has nothing to do with the applicants financial position, but deals with the property in question. All mortgage lenders will require a comprehensive appraisal of the property that the applicant is seeking to purchase. This prevents the lender from lending out more money than the property is worth. Should the loan turn bad and result in foreclosure, it is crucial to the lender that the resell value of the property be enough to cover the amount originally lent out.
This guideline can help a potential homebuyer in examining his own credit and make adjustments before applying for a loan. Having everything in order can streamline the process and be advantageous when the application is reviewed.
About the Author:
Wendy Polisi is the founder of Credit Repair College and Finance the Dream. Credit Repair College empowers people to take control of their financial future by learning everything they need to know to repair credit on their own. For more information on credit repair please visit them on the web. Finance the Dream offers rent to own houses throughout the United States.
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