Do You Qualify For A Mortgage?

Mortgage Lender Overlays

Gustan Cho Associates

Home buyers need to qualify for a mortgage before they can go shop for a home.  Almost all realtors will require a pre-approval before showing a home buyer a home.  Some realtors will even go to the extent of asking to speak with the mortgage loan originator who issued the pre-approval prior to accepting a real estate purchase offer.

If you are intending in buying a home now or in the future, you should consult with a mortgage loan originator to see whether you qualify.  Just because you have good income, good credit, and the down payment does not mean that you will qualify for a mortgage.  On the flip side, just because you have poor bad credit, low credit scores,  prior bankruptcy, prior foreclosure, prior deed in lieu of foreclosure, prior short sale, unsatisfied collections, judgments, tax liens, charge offs, and prior late payment does not mean that you do not qualify for a mortgage either.

Qualifying For Home Loan

There are many factors that determines whether you qualify for a mortgage.  Just because you get denied by one mortgage lender does not mean that you do not qualify for a mortgage.  You may not qualify for a mortgage with the particular lender you went to but that does not mean that you do not qualify for a mortgage with another mortgage lender.  Each mortgage lender have their own mortgage lending requirements which are called mortgage lender overlays.  One mortgage lender may have a mortgage lender overlay that might affect you from qualifying with them but another mortgage lender might not have that mortgage lender overlay.  An example of this type of situation is when a mortgage lender requires a certain amount of credit tradelines and the terms of the credit tradelines.  A credit tradeline is when you have developed a credit payment history with a creditor such as a credit card company, auto loan, student loan, or any other creditor that is reporting your credit payment history to the three credit reporting agencies for at least 12 months.

Overlays On Credit Tradelines

There are mortgage lenders that will not qualify you for a mortgage loan if you do not have 4 credit tradelines.  Some lenders will want to see 24 months of credit history instead of 12 months.  Other lenders might require rental verification even though DU FINDINGS and/or LP FINDINGS does not request it.  Rental verification is only valid if the mortgage loan applicant has been making their rental payments with a check for the past 12 months unless the mortgage loan applicant has been renting from a registered licensed property management company.  If the mortgage loan applicant has been renting their home from a registered licensed property management company, then a letter from the property management company manager is suffiecinet.  If a mortgage lender requests rental verification and the mortgage loan applicant cannot provide it because they are currently living with family or paying cash for their monthly rent, that mortgage loan applicant will not qualify for a mortgage with the mortgage lender that he or she is applying with.

Why Do Mortgage Lenders Ask For Rental Verification And The Importance Of Rental Verification

If you are renting, it is so important that you pay your landlord with a bank check so you can prove you have rental verification.  Rental verification is extremely important and mortgage lenders look at rental verification as a compensating factor while other mortgage lenders will not take any mortgage loan applicant who does not have rental verification.  The reason being is because of payment shock.  If you cannot provide rental verification, that means the mortgage loan underwriter will view that you are going from paying $0 dollars in rent to a new mortgage payment which is called rental shock.  However, if your are currently paying $1,000 in rent and your proposed principal, interest, taxes, and insurance housing payment is $1,250, then your rental shock is only 25%.  Mortgage lenders will feel more at ease because you are used to paying $1,000 and your new proposed mortgage payment will only increase by $250.00.  Unfortunately, any cash rental payment to the landlord even with a receipt signed by the landlord is not valid rental verification.

Do You Qualify For A Mortgage?

If you have been told no from a bank, credit company, or mortgage banker, ask them why you do not qualify with them and what is the reason why you do not qualify with them.  Chances are that it is because of their own mortgage lender overlays.  You need to consult with a mortgage banker and/or mortgage broker who has little or no mortgage lender overlays and will just go off automated findings.

Qualifying Factors To Qualify For A Mortgage

One of the factors that determines whether you qualify for a mortgage or not is that you need verifiable income.  Cash income does not count in mortgage qualification.  To qualify for a mortgage, here is the check list to see whether you qualify or not.

1.  Two year employment and residential history.  You need to have worked for two years.  You do not need two years continous work history and gaps in employment is allowed.  If you have been unemployed or out of work for six months or less, then you need to have been employed for at least 30 days on your new job as a full time employee.  If you have been unemployed for six or more months, then you need at least six months on your new full time job.

2.  You can qualify for a mortgage if you have a part-time job or multiple part time jobs,  However, if your employment is only part time, then you need two years employment history.  If you are self employed or 1099 wage earner, you need to show two year employment history.

3.  Minimum credit score to qualify for a 3.5% down payment FHA loan is 580 FICO.  You can qualify for a FHA loan with credit scores between 500 FICO and 579 FICO, however, the minimum down payment for borrowers with credit scores under 580 FICO is 10%.

4. Maximum debt to income ratios for borrowers over 620 FICO credit score is 46.9% front end, and 56.9% back end debt to income ratios.  For mortgage loan applicants who have higher debt to income ratios and/or cannot document income, FHA allows non-occupant co-borrowers to be added on the mortgage loan note as long as the non-occupant co-borrower is a relative and/or family member.

5. 100% gift funds are allowed by relative and/or family members for down payment and closing costs.

6.  Open collections are allowed.  With non-medical collection accounts over $1,000 balance, 5% of the unpaid collection balance will be used towards calculating debt to income ratios.  Non-medical collections are exempt.

7. Prior bad credit is acceptable, however, timely payments in the past 12 months is required.

8. 2 year waiting period after bankruptcy discharge date.  3 year waiting period after foreclosure and/or deed in lieu of foreclosure from the recorded date reflected on public records.  3 year waiting period after short sale date reflected on the HUD Settlement Statement.

10. One year waiting period after bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale under FHA Back to Work Extenuating Circumstances due to an economic event for those who qualify.  Need to have been involuntarily terminated from job or the employer needed to have gone out of business where it affected the borrower’s household income to be reduced by at least 20% or more for a period of six or more months.  FHA Back to Work Extenuating Circumstances due to an economic event mortgage loan program are all manual underwrites.

11. Conventional loans require minimum credit score of 620 FICO, with 5% down payment, and no greater than 45% back end debt to income ratios and no lender overlays.  As long as you get an approve eligible per DU or LP FINDINGS, we will close on your loan.

12. Jumbo mortgage loans with 10% down payment, 90% loan to value available for high home buyers with 740 FICO credit score.  Minimum credit score for Jumbo mortgages is 680 FICO.

Qualifying For A Home Loan With Bad Credit Or High Debt To Income Ratios

As mentioned in earlier paragraphs, as long as you have documented income, you will qualify for a mortgage loan.  If you have credit and/or financial issues and have documented income, still consult with a mortgage lender who is willing to work with you.  It is not if you will qualify for a mortgage but when you can qualify for a mortgage.  Over half of my mortgage loan borrowers are mortgage applicants who could not qualify elsewhere due to the particular mortgage lender overlays but I got them qualified and got their mortgage loan closed and funded.  Homeownership is still the American dream and every hard working American should be a homeowner.  The time to start is now and contact a mortgage lender to see if you qualify for a mortgage and if you don’t, then have the mortgage lender help you get you qualified.  There are mortgage loan borrowers who I work with for months and finally get them qualified for a mortgage loan.

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The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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