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What Are Lenders Looking for in Approving a Mortgage
According to Freddie Mac and Fannie Mae they examine 14 factors when
evaluating a mortgage. Some are related to the loan itself while others
consider you, tHE the borrower.
Equity. The appraised
value or sale value of the home minus the loan amount.
- Credit history. Relative
to your FICO credit score.
- Liquid reserves. The
amount of your liquid assets: cash left in a checking account, after the loan
closing, divided by the monthly mortgage payment.
- Total debt-to-income
ratio. The amount of your monthly debt payments for the expected mortgage
plus any existing car loans, credit card debt and school loans (to list only
a few) divided by your gross monthly income.
- Your employment status.
Are you salaried or self-employed?
- Loan term. How many years
will your loan be on the books?
- Rate and payment structure.
Does it have an adjustable rate or balloon payment at the end?
- Number of units. Are
you proposing to buy a two-unit property and rent out one of them to help
- Co-op, condo or attached.
Are you purchasing a condominium or a house?
- OPM, Other People's Money.
Is some of the funding a gift or a personal loan?
- Purpose of the loan.
Is it for a home purchase or refinance and if so, is cash being taken out
at closing and how much?
- Are their cosigners to the loan. How many people are on the application?
- Have you ever been foreclosed
on or gone bankrupt before?
- Have you ever been late
with a mortgage payment before?
The Three Most Crucial Points
As Highlighted Above, the Three Most Important Points Will Be: Equity,
Credit History and Liquid Reserves. As in most other cases, if you,
as a borrower, have more invested in the transaction in the form of a
higher down payment, have managed your general finances well over the
years and will still have a fair amount of money left over in the bank
after closing you are considered less of a risk and you are more apt to
get the loan and the terms you seek. Conversely, anything at all from
your financial past that is not up to par will count against you. Late
payments, nonpayment or default are high on this list of detractors.
If you are relying on a
family gift or assuming a personal loan for all, or a portion of the down payment,
much of the time this will put you into a higher risk group.
When the question of loan
terms comes up, a 30-year fixed rate mortgage is considered to be less risky
than an ARM, adjustable rate mortgage, but a 15-year mortgage is considered
to be even less risky than either of those because borrowers default even less
frequently on them, than 30-year ones.
Your employment history
is also an important factor. Whether or not you stayed at one job, for an extended
period of time or switched, may not be as important a factor as the consistency
of your income. Meaning, you may have changed your job frequently, but if you
always maintained or increased your level of income that will be a deciding
factor. You probably would never be penalized for having taken a better position
and the subsequently better salary that goes along with it.
When it comes down to the loans purpose, there's nothing better than
a straightforward, refinanced loan. But if you plan on taking cash out
at closing and you adversely affect the LTV, loan-to-value ratio, by raising
it too high, you could be denied.