What Do Mortgage Lenders Want To See In A Borrower?

Gustan Cho Associates are mortgage brokers licensed in 48 states

This Article Is About What Do Mortgage Lenders Want To See In A Borrower

The number one concern lenders have and want to see in a borrower is the ability to repay their new mortgage. This is why lenders are very careful when qualifying, processing, underwriting, and approving a mortgage loan for a borrower. The income and the likelihood for the income to continue for the next three years need to be highly likely. The borrower’s prior payment history reflects the borrower’s financial responsibility history. In this article, we will discuss and cover factors mortgage lenders want to see in a borrower.

Lenders Want To See The Borrower’s Ability To Repay

Why do lenders want to see the borrower's repayment ability

Mortgage Lenders are in the business of originating mortgage loans. The more mortgage loans they originate, the more money they make. Mortgage lenders want to originate and fund as many home loans as possible. However, they need to make sure that the loans they originate and fund are good and do not default. Lenders need to follow strict FHA, VA, USDA, and/or Fannie Mae lending guidelines in order for them to be able to re-sell the mortgage loans they originate on the secondary market. If they make any mistake in not following the standard government and/or Fannie Mae guidelines, it may mean that they need to be stuck withholding the loan and not being able to sell them on the secondary marketplace.

Ideal Mortgage Borrower

The ideal mortgage loan borrower for every mortgage lender is a borrower who has the following:

  • high credit scores
  • great stable income
  • excellent payment history
  • no late payments
  • no bankruptcies
  • no foreclosures
  • no deed in lieu of foreclosures
  • no short sales
  • low debt to income ratios
  • consistent employment
  • rental verification
  • sufficient reserves
  • lower loan to value
  • compensating factors

Unfortunately, this is most likely not the case. Borrowers with the above credit and financial profile can go anywhere and can bank they will get an instant mortgage loan approval.  For those borrowers seeking a home loan with bad credit, there are things that lenders look for.

How Mortgage Lenders View Credit History

How Mortgage Lenders View Credit History

We will discuss credit scores in the next paragraph and discuss credit history. Lenders do not just look at borrower’s credit scores. Mortgage Underwriters will review the borrower’s overall credit history. Borrowers can get a home loan with bad credit. But credit history will be reviewed and analyzed on the period of bad credit.

For example, let’s take a case scenario:

  • The borrower had a ten-year credit history
  • Had great credit for the first 7 years
  • But losing a job in the 8th year
  • Credit scores might have plummeted on the 8th and 9th year
  • But in the 10th year, credit may have started to get re-established

This is honorable and understandable:

  • On year 8 or year 9, the borrower may have filed bankruptcy, had a foreclosure or deed in lieu of foreclosure
  • Or even had a short sale
  • But in year 10, a borrower might have gotten 3 to 5  secured credit cards
  • Had a perfect on-time payment history since then
  • This is very important
  • What mortgage lenders will look on this case scenario is borrowers had stellar credit for the first 7 years of their life and the two years, 8th year and 9th year, the reason for bad credit was due to a loss of job, loss of business, sickness, or divorce and due to these extenuating circumstances
  • This is why credit went to HELL

But after they got new employment, borrowers began to re-establish credit by establishing new credit either by getting secured credit cards or adding other positive credit.

Mortgage Lenders Want To See Borrower Re-Established Credit After Bankruptcy And Foreclosure

Mortgage Lenders Want To See Borrower without any late payments after bankruptcy and/or had a foreclosure: Late payments after bankruptcy and/or foreclosure or short sale is an automatic denial for most lenders. Lenders want to see re-established credit after a  bankruptcy and/or foreclosure.

One or two late payments after bankruptcy and/or foreclosure are not a deal killer with Gustan Cho Associates.

Mortgage Lenders Want To See Borrower Rental Verification

Why do mortgage lenders want to see a hiring verification for borrowers

Verification of rent is extremely important and carries a lot of weight. Rental verification is only proven by providing the mortgage lender 12 months of canceled checks payable to the landlord and/or 12 months of bank statements showing timely rental payments. Cash payments and a receipt by the landlord cannot be used to prove rental verification. For renters renting from a registered property management company, a VOR Form completed by the property management manager is sufficient in lieu of canceled checks and/or bank statements.

Make sure if renting, to pay monthly rent payments with a check.

No Bank Overdrafts In Past 12 Month

One of the worst things lenders do not like to see is overdrafts in bank statements in the past 12 months. Bank overdrafts are viewed by mortgage lenders as financial irresponsibility. Mortgage loan applicants can get denied a residential mortgage loan with bank overdrafts in their bank statements.

Borrowers who need to qualify for a mortgage with a mortgage lender with no mortgage overlays, please contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. Gustan Cho Associates has no lender overlays on FHA, VA, USDA, and Conventional Loans.

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