Get Your Lender to Say YES!
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.
Payment history is another important aspect of an applicants financial picture; lenders look for late payments on credit reports. On-time payments are very important to mortgage lenders. Payment history information is part of a credit report but lenders look closely because as part of the FICO score it is weighted differently than mortgage lenders weigh it. An applicants credit file is scrutinized closely to find out all there is to know about his or her payment habits. This goes far beyond looking at the credit score. Attaching a letter of explanation to a mortgage application would be helpful to a lender who is going to see several late payments.
There is other information that lenders want that is not included on a credit report. Having an understanding of an applicants other financial holdings helps them know whether or not there are means to make an equity investment, or down payment. Also, semi-liquid assets like retirement accounts or large stock portfolios can soothe over not so perfect debt ratios. Most mortgage lenders like to see that an applicant has additional assets that make it possible to make mortgage payments out of regular income. Since this information is not available as part of a credit report, applicants should be prepared to provide this information to a lender.
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.
Potential homebuyers can get their application looking great when they have this information. This article should have sparked some thought about how to improve your financial situation.
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 secret please visit them on the web. Finance the Dream offers rent to own homes throughout the United States.
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Tags: credit, credit repair, finance, home loan, loans, mortgage, Mortgage loans, mortgage qualification, personal finance
