When Mistakes On Credit Report Prevent Loan Qualification

What to do when you discover mistakes on your credit report are the reason why you cannot qualify for a mortgage

In the credit reporting system, you are considered to be guilty before you can be proved innocent by the credit bureaus. In a nutshell, this means that if you have an error showing on your credit report which is a negative entry, it will be presumed to belong to you till you can have it removed from your credit file.

Removal Wrong Information from Credit Report

You can remove wrong information on your credit report and correct error by either disputing them with the credit bureau or by speaking to the lender.

The most serious kind of mistakes and damaging errors that can find their way on your credit are either mistakes about having made a late payment when in fact you were never late. The other kind is when you have somebody else’s credit accounts reported on your credit, which is made worse by a situation when that somebody else’s credit account is a delinquent or late account.

Many people do not discover the mistakes on their credit report till their mortgage application gets rejected because of it. If this is what happens to you then it is still not too late to begin the process of correcting the damaging in accuracies on your credit for.

You can remove inaccurate and negative data from your credit reports that does not belong to you or has been reported in elders by either the creditor or the credit bureaus themselves by filing a dispute with the credit bureau. This dispute can be filed online, over the phone or by writing a letter to the credit bureau. There is a procedure to be followed in order to do this which can easily be determined by visiting the websites of any of the credit bureaus. The process of filing a dispute is made easier when you order your own copy of a personal credit report. The credit bureau is supposed to respond to your inquiry and request for information collection or removal within 30 days of receiving such a request. Let’s say that an account was reported as late when you were never late on the payment. You can either approach the creditor and asking to correct the errors in the next reports that he sends to the credit bureau or you can provide the credit bureaus with substantial documentation to show that the payment was made. If you get a brushoff from the front-line customer service of the credit bureau you can did want to speak to their manager. If that doesn’t work you can file a complaint with the local government regulatory agencies. Your idea is to get the blemish removed from my credit report and often this process will require patience and persistence.

It is possible that despite all efforts you are not able to get the entry corrected or removed from my credit report. This can happen when the creditor for some reason refuses to be accommodating and does not make the effort of correcting the entry on your credit file and/or the credit agencies deemed the report to be accurate because you are unable to provide them with enough documentation to prove that the account was and is current. If this happens and you are not satisfied with the result of the dispute that you filed with the credit bureau you are allowed to put a statement of contention in your credit file which will allow future creditors to see your stead of the story and know that the negative entry on your credit report has been disputed by you.

It is a good idea to apply for your credit report before you put in an application for a mortgage loan. You can even ask the lender to give you a copy of your credit for because you are most likely to be paying for it in the origination fee.

Get a Free Credit Report

However, you do not have to depend on anybody to give you a free copy of your credit report because the federal law gives you the right to obtain a free copy of your credit report directly from each of the credit bureaus once a year, you can get your free credit report from Equifax [800–685–1111, www.Equifax.com], Experian [888–397–3742, www.Experian.com] and Trans Union [800–916–8800, www.TransUnion.com], by visiting www.annualcreditreport.com

AnnualCreditReport.com is a website managed jointly by the 3 national credit bureaus and regulated by the federal law of fair credit reporting act which allows you to access the free copy of your credit free every year. You can order your 3 credit reports all at once or you can stagnate the process, ordering one every 4 months which allows you to keep fairly constant monitoring over your credit file.

The fair credit reporting act also gives you the right to receive a free copy of your credit report if you are turned down for a loan because of some information in your credit file as long as you make the request from the credit bureau within 60 days of the denial.

5 Common Problems With Home Loan Approval And How To Solve Them

Dealing with Common Problems In Mortgage Approval

The ideal borrower has a good credit rating, can make a substantial downpayment, can prove good income, has few debts and liabilities and shows stability. Problems and  obstacles come about when any of these conditions cannot be met by the borrower.

However, these are common issues faced often by both the mortgage lenders and the borrowers, and there are solutions.

1) Credit Blemishes

    1. If you have had problems with creditors in the past and resulting nonpayments, late payments or delinquent accounts then you really cannot escape the consequences for very long. Mortgage lenders pull your credit report to evaluate your credit worthiness. They will see these negative remarks and will be reluctant to approve you for the loan.
    2. If this could happen to you take action as soon as possible. There are ways to improve your credit score. But these methods take some time. So act sooner than later.
    3. Do not try to hide facts from the lender because he will find out eventually. It is better to be up front with the mortgage lender and give an explanation for the credits lapses in the past if such reasons exist. Many lenders understand that situations beyond control such as loss of job or serious illness can result in problems with the credit history.
    4. Ask your lender upfront if the entries on your credit file are going to interfere with your mortgage application and which entries you need to be dealt with to have a better chance of loan approval. This direct feedback from the lender will tell you what issues you need to address.

    5. Seek alternate lenders. You will not have much luck finding lenders that dealing with subprime mortgage in today’s market conditions. Most of the lenders that dealt with subprime borrowers closed shop many years back when the meltdown in the real estate industry began.
      These contenders were known as B paper lenders and are more or less missing from the current market. The price that you have to pay to get approved for a mortgage loan in spite of having a less than shiny credit is that you pay a higher interest rate on your mortgage and maybe even higher origination and closing costs. Read more about bad credit / sub-prime mortgage.
    6. Use a mortgage broker. Mortgage brokers are usually in the know how of many lenders and depending upon your need and requirement can match you with the right lender, which in this situation would mean a lender with less stringent underwriting guidelines.
    7. Get a cosigner for your mortgage application who has a strong credit history and rating.


2) Fixer uppers and cooperative apartments.

Its just difficult to get a loan to buy a co-operative apartment. The reason lies in the complicity of the deed. Read in great detail about co-operative apartments and why they are different from standard mortgages.

Fixer uppers of properties that require major repairs or improvements before they can be considered safe for habitation. Major repairs could include an old foundation that needs repairs, old electrical wiring, plumbing replacement of the roof etc.

If the necessary corrective work exceeds 3% of the property value which is always the case with the major fixer-upper, getting a mortgage loan is a problem.

In all probability the lender will give you two separate loans. One for buying the property and another construction loan to make the necessary repairs and improvements.

3) Low appraisal

Another problem that can arise with your mortgage approval process is when the appraisal of the home comes in too low. You may have the income to afford the mortgage and your credit may be blemish free. But if the appraiser says that the loan amount you are borrowing is too much and that the property is really not worth that amount, your mortgage application may get rejected.

The reason is simple. For the lender, the home is the collateral. He is going to sell it to recover the money he lent you incase you ever default in the future. If the value is less than what you are borrowing, then he is already at a higher risk.

There are many reasons why a home may get appraised for a lower price than you thought.

    1. You overpaid. It can actually happen that overpaid because you liked the house. The amount that you are wiling to pay may have very little to do with the actual market value. You may be willing to go steep for your dream house but that doesn’t meant anybody else will.

      You have no option but to ask the seller to reduce the asking price. If the seller doesn’t agree move on without wasting your valuable time. You may also consider getting another real estate agent specially if you suspect that the present agent was deliberately trying to inflate the value of the property to increases his commission. A good agent’s negotiating skills and knowledge of the property rates can save you thousands of dollars whereas an incompetent and unethical agent can cost you that many extra.

    2. The home you are buying is located in a declining market. After the decline in the real estate housing sector, certain areas were more badly hit than others. Lenders put certain restrictions on mortgages in areas where the rates of the properties declined more dramatically. If your house belongs to such an area you might have to pay a higher rate of interest on a mortgage and be willing to make a larger down payment.

      A mortgage lender may make an exception to your dream home if your appraisal can demonstrate conclusively that the property values are not falling within the geographic area where your house is located.

    3. The appraiser does not know the property values in your area. It is quite possible that the appraiser that has been hired by the mortgage lender is un-aware of the market trend in your locality.

      This is especially true if the appraiser is from out of town. Many times the mortgage lenders hire professionals operating companies which may send their trained appraisers from their head office. For example, you decided upon the price that you wanted to pay based on the sale of comparable houses in the neighbourhood. But the appraiser valued the property lower because he was not aware of the neighborhood property rates.

      If this happens to you, request a copy of the appraisal from the mortgage lender. View what houses and sales he has taken in to consideration. If he has not made valid comparisons, you can point it out to the lender and show your concern. In such a case, some lenders might be willing to get a second appraisal at no extra cost although you should know that this is rare. It is difficult to get the lender to agree to a free second appraisal specially if the appraiser is someone the lender has been working with in the past and has confidence in his evaluation.

    4. The lender could be redlining. Redlining is the practice where the lender discriminates against a certain area or locality and does not give out loans for that area. This practice is illegal and so not very likely the reason for a low appraisal.

      However, if you do suspect that this could be the issue ask for a copy of the appraisal report. See if the appraisal is based on a realistic estimation of sales in your locality or not. If you find that the appraisal report does not reflect the current trend of property in your area you can ask the lender for an explanation. If you do not get a satisfactory response you can ask for a full refund of your loan application and appraisal fee and move your business to another mortgage lender. You can even consider filing a complaint with the appropriate agency in state that regulates mortgage lenders.

4) High Debt To Income Ratio

A lender can deny you a home loan if he feels that your debt to income ratio is already too high. Even though you feel that you are ready to take on the additional loan, when the lender tells you that you have way too much debt already, it might be time to take a closer look at your current liabilities.

Remember that the monthly payments on a home loan create a substantial financial burden. If you have not planned for it, it can interfere with your ability to maintain a certain lifestyle.

Here are some ways in which you can resolve the problem of having too much debt.

    1. Paydown the long-term loans. You can consider paying off some of your existing loans such as automobile loans and student loan. Paying off your existing loans will help in reducing your debt to income ratio. You should discuss this with your mortgage lender because typically the loans that have less than 10 months remaining on it are not considered as long-term notes.

      Fannie Mae and Freddie Mac prefer to have the payments on long-term debts not to exceed 40 to 45% of your gross monthly income.

    2. Cut down on your lifestyle expenses. If you are stretching your financial resources to the limit already with the current lifestyle that you have you have 2 options that you can implement. You can somehow increase your income or cut down on the frivolous and nonessential expenses.

    3. Take help from friends and family. If you have friends and family who are ready to boost your finances when you’re applying for markets such as giving you money for down payment or even having an equity share in the home, to not feel shy or too proud to ask for such help. Many times the close family and friends will be more than happy to help you out. It is also not too uncommon to have your parents or close family cosigned on your mortgage application.

      However there are ramifications for the cosigner. In case you are late on your payments in the future or for some reason cannot meet their mortgage obligations anymore the cosigner can be held responsible but the lender to make the payment. This could mean financial burden and even a financial emergency for the cosigners.

      You should discuss these aspects in detail with the person who you’re asking to cosign on your mortgage application and make sure that they are aware of every aspect and responsibility that they are undertaking.

5) Insufficient income

If you are having problems with getting qualified for mortgage because your income is deemed to be insufficient then there are a few steps that you can take to deal with this problem.

Your mortgage lender is trying to tell you that with your current amount of income you will most likely face severe financial stress if you take on this mortgage loan. Before you get upset with this think about the problem carefully. It may be possible that you have not calculated your financial obligations carefully.

If this is the case then it is time to go back to the calculations. Maybe you are not ready to borrow on a mortgage loan just yet and should wait for another couple of years until your business is doing better or you have got that promotion with the added salary raise.

  1. Larger downpayment. However, if you still feel confident that you can safely afford the mortgage with your existing income then you can increase the down payment if you are cash rich. Many lenders have less restrictive income requirements for applicants making more  than 25% downpayment.

  2. Get a company-borrower. Mortgage lenders usually like to have more than one borrower sign on a contract and take the joint incomes of both the people signing for the loan into consideration. So if you cannot qualify for the mortgage loan all by yourself you may be able to do so if you get the parents or spouse to cosign with you on your mortgage application.

Credit Report Problem Stops Mortgage Approval – What To Do

What to do when Credit blemishes stand in the way of getting approved for a mortgage loan.

Negative entries on your credit report can into the mortgage modification process. If you have had problems with creditors in the past and resulting nonpayments, late payments or delinquent accounts then you really cannot escape the consequences for very long. Even if you have not ended up settling or paying your creditors they will have reported these discrepancies to the credit bureaus and these records have found a way on your credit file. Which means that all future creditors who received an application from you and subsequently pull your credit report in order to evaluate your credit worthiness will see these negative remarks and will be all the more reluctant to approve you for the loan. If this is what is liable to happen with you when you apply for a home loan then you should take images and bold action today. 1st afford to not try to be quiet or hide these factors from the lender because he will find out eventually. It is better to be up front with the mortgage lender and give an explanation for the credits lapses in the past if clear and substantial reasons exist. Many lenders understand that situations which are beyond swamped control such as loss of job or serious illness can arise which can result in problems with the credit history and payment records. If such entries to exist on your credit file and you should ask your lender upfront if they’re going to interfere with your mortgage application and which entries you need to deal with in order to have a better chance of your mortgage application getting approved. This way you will get direct feedback from the lender himself and will know what issues you need to address on your credit file. There are some other ways in which we can deal mortgage approval problems if your credit report is a problem. There are a few ways in which you can combat a poor credit rating and get approved for a mortgage loan.

Seek alternate lenders

I’m not really sure how much luck you will have finding lenders that the with subprime mortgage in today’s market conditions. Most of the lenders that dealt with subprime borrowers closed shop many years back when the meltdown in the real estate industry have. These contenders were known as B paper lenders and are more or less missing from the current market. The price that you have to pay to get approved for a mortgage loan in spite of having a less than shiny credit is that you pay a higher interest rate on your mortgage and maybe even higher origination and closing costs.

Taking help from a mortgage broker

Mortgage brokers are usually in the know how of many lenders and depending upon your need and requirement can match you with the right lender. In this situation where you have the need to find a lender with less stringent underwriting guidelines, a good mortgage broker might know of a few.

Seek seller financing

When the interest rates for investments are high and as well as the rates on the mortgage loans, many sellers take to financing the home loan themselves. Sellers do this when they find that their finding problems in finding buyers for the home. This is somewhat a risky process for seller but some do it nevertheless. When the seller himself finances the loan terms and conditions can be more lax as compared to a mortgage loan from a formal lending institution. If you can demonstrate that you are in a financially strong position today to pay for the mortgage and the seller may be willing to ignore previous records because he is not bound by a set of policies and guidelines as many formal lending institutions are.

Get a cosigner for your mortgage application once again, the solution to having a poor credit rating may be to get a cosigner on your mortgage application, one who has a strong credit history and rating.

Save money and improve your credit

If you find that in spite of everything mortgage lenders are charging you astronomical rate of interest on your mortgage and/or are rejecting application down right then perhaps you should concentrate on improving your credit rating before you apply for a mortgage . Loan. In the meantime you can continue to rent and even save money for our larger down payment that will further help in bringing down the interest rate on your mortgage loan. Use credit responsibly and make regular payments so that in a couple of years time your credit rating is much better than what it was before.

Problem Properties – A Problem With Mortgage Approval

There are typically 2 types of properties that are difficult to get a home loan for. They are fixer uppers and cooperative apartments.

Cooperative apartments

When you purchase a home you get the title deed in your name that proves that you own the house. Whereas when you buy a cooperative apartment you get the proprietary lease that says that you are allowed to stay in the apartment that you bought but these of the building remains in the name of the cooperative society. What you get is a stock in the shares of the Cooperative Corporation. In places such as New York where objective importance of, and getting a mortgage for this kind of housing is not a problem. But in other parts of the country vendors are hesitant to make mortgages for corporative Apartments because accepting shares of stock and cooperative corporation as security for a mortgage loan is unusual and pretty uncertain for most lenders.

There is also a problem of higher interest rate on corporate apartment loans. The reason is that in many areas there could not be many lenders who deal with these kind of mortgage loans. Which means that there is less competition and it allows them to charge the interest rate of their choosing. If this is the case in your area you might be better off not choosing a corporative apartment unless you are ready to pay the majority of the cost yourself. Another disadvantage that could stem from not having many lenders who dealing with mortgage loans of this kind is that when you try to sell your property you won’t find many buyers because they will face the same problems as you did when you wanted to get a loan for a cooperative housing. You have to look for buyers who have ready cash, which is very rare or you might have to finance the loan for the buyer yourself, which in most cases is a pretty risky proposal.

Fixer uppers

Fixer uppers of properties that require major repairs or improvements before they can be considered safe for habitation. Major repairs could include an old foundation that needs repairs, old electrical wiring, plumbing replacement of the roof etc. If the house that you want to buy it only requires cosmetic repairs such as painting and carpeting, you are not likely to face much of a problem with the mortgage. But for any more serious and structural repairs it might be difficult to get a mortgage loan. In fact you should even question the decision to buy such a property. If the necessary corrective work exceeds 3% of the property value which is always the case with the major fixer-upper, getting a mortgage loan is a problem.

You might have to take the course to dealing with a lender who makes these kind of loans but even that will depend on your creditworthiness and the feasibility of the repairs. In such a case the lender will probably give you the mortgage loan to buy the property and a construction loan alongside to make the necessary repairs and improvements.

Understanding How Credit Score Are Used For Mortgage Qualification and Underwriting

Usage Credit Scores for Mortgage Application

More and more lenders not rely on the credit score of our borrower to make the initial decision regarding the credit worthiness of the individual. Cost experience and usage has to get that credit scores our excellent predictors of the mortgage loan performance as well as the reliability of the consumer has a borrower. credit scores developed by analyzing the board was payment history and credit report, our pivotal for the functioning of the automated underwriting process as well.

A person’s credit score have nothing to do with the board was age, race, gender, religion, national origin or marital status. They are calculated using a complicated but effective algorithm using the information present in your credit file such as your debt and payment history.

The following are some of the factors used in calculation of your credit score:

Public records: any data present in public records that is connected to your credit such as federal court judgments for any payment recovery or debt repayment, filing of bankruptcy, tax liens and foreclosure which are usually available in the county recorder’s office are used in the calculation of your credit score and have a direct impact.

Outstanding balance: outstanding balance against existing lines of credit such as personal loans, automobile loans, current mortgage or credit card balance is used in the calculation of the credit score. The higher the balance as compared to the credit limit available to you lower is the credit score. This mostly applies to unsecured and revolving credit such as a credit card because all other kinds of loan only get reduced by running through their term. But the older these accounts get and the more regular payment history reflected on the payment the better it is for your credit score.

Age of credit and delinquent accounts: the age of your credit accounts also matters for the purpose of calculation of the credits score. Older credit accounts with a good payment history have a more positive impact whereas newly opened credit accounts have to wait till they show signs of stable and your payment till they can increase your credit score. In fact many credit accounts opened recently in a short duration of time have a negative impact on the credit score. Another thing that is considered is the duration for which you have been current on your payments. If there has been a delinquency within the past few months and it will have a more negative impact on your credit score as compared to a late payments that happened a few years back. The negative impact of late payment decreases with the passage of time where more recent negative entries have a more serious impact on the credit score.

Recent inquiries on your credit report : if you have been applying for lines of credit recently which has resulted in several inquiries on your credit report in a short duration of time it is likely to have a negative impact on your credit score because it could mean that you are facing financial problems which has brought about the need 2 apply for additional credit to supplement lack of income.

The 1st and the most widely used credit scoring model was developed by the Fair Isaac Corporation and is called the FICO score. Fico score is the most widely used credit score even by market centers, although some choose to use specialized credit scores provided by 3rd parties. The special credit course are supposed to be calculated keeping the need and the risk of a mortgage lender in particular in mind during calculation. A FICO credit score is a 3 digit number which ranges from a low of 300 to a maximum of 850.

On broad sampling of 25,000 mortgage loans made by the Federal housing administration [FHA], analyzed by Freddie Mac, it was discovered that borrowers with fico scores of 680 or more one less likely to default on their mortgage. It goes to show why borrowers with a high credit score are given your mortgage rates as well as charged less origination fee and closing costs. Conversely a lower credit score of 620 or less could be a strong indication that the borrower is a credit risk. As a result these borrowers will be charged the hired it of interest on them on page because the lender wants to recover the money lent as much as possible. This works because the initial payment for the 1st many years of a mortgage loan go towards making the interest payment on the mortgage. So a lender on small interest from those borrowers who have a low credit score but also takes on the additional risk of lending to these for those in the 1st place.

New and Automated Underwriting Procedure

New Underwriting Technology

As mentioned before mortgage lenders are coming up with better ways to underwrite the loan applications in order to reduce defaults and foreclosures on the loans that they approve. They are trying to come up with better ways to just the creditworthiness of the borrower in order to make good decisions with the lending them money. The mortgage finance industry has not undergone changes in the underwriting process due to changing market conditions but also because of technological changes. 2 such big changes and innovations in the underwriting process for markets not include automated underwriting and the use of credit scores to judge a borrower’s credit worthiness.

Automated underwriting process for home loan applications

The writing process a few days back used to be a completely manual process. It used to involve a lot of paperwork and could be very expensive and slow. It also tended to be inconsistent since it relied on human opinion which could vary from one lender to another. The same documentation and paperwork could result in different outcomes with different underwriters since one human being was likely to reach the conclusion about the risk of the loan than the other.

All this changed with the development of underwriting process.

Automated underwriting programs can accurately and objectively analyzed the risk factors present in a mortgage loan application. Although these results are still preliminary and the final underwriting and loan approval is to be undertaken by a human being they greatly reduce the time involved in prequalifying and getting preapproved for a mortgage loan. For many people who have a good credit history and can present legal and verifiable documentation the automated underwriting process can get the results within a few minutes for a positive loan approval result.

It is usually to borrowers with debatable and suspect information on their mortgage application that need to provide further documentation and meet human intervention 2 further get into the details of their financial situation.

Automated underwriting has managed to reduce the paperwork which has cut down the borrowers loan origination costs by hundreds of dollars for each mortgage loan application.

It is not possible for many people to get the result of a mortgage loan application within a few minutes of entering the data into the automated loan underwriting software system.

Why You Should Not Give Wrong Information On a Mortgage Application

Mortgage Lenders Detect Red Flags on a Loan Application

It has been estimated by reliable resources that almost 25% of people applying for a mortgage provide false information on their mortgage application. This does not mean that they are trying to commit fraud or they are crooks. The main reason why people may provide strong information on their mortgage loan is because they are simply trying to get qualified for the amount of mortgage loan that they wish to borrow. In order to do this to enhance and overstate their income, understate expenses and create nonexistent sources of income for their cash down payment. Lenders through their experience and trends in the industry are trained to spot inconsistencies in a mortgage application.

Since this scrutinized documentation carefully such as employment record, bank statement, income tax return they are in a good position to spot these anomalies.. Examples of this bizarre a high-income borrowers with little or no cash on deposit which could signify hidden liabilities. Another high income earner who recently applied for several lines of credit may signify financial problem.

Also large cash deposits in the accounts of young people who did not have the source of income to substantiate such deposits meant that they usually put financial aid from the parents specially if the deposit was made after the mortgage application.

While technically there is nothing wrong with family and parents trying to help the children out in getting their markets, it needs to be determined whether this money is kept or it is a loan that must be repaid which makes it an additional liability to the mortgage payment. This additional liability could mean financial trouble in the future and inability to meet the mortgage payments. Another red flag is when the applicant claims that he has never used credit and does not have any open lines of credit. It is unlikely to find a person who does not have or use a credit card and yet is applying for a mortgage loan. Usually such candidates are trying to hide a bad credit report or some instance on the credit file such as bankruptcy or foreclosure.

You should be forewarned that any false information that you provide on your mortgage application is likely to get caught. In such a scenario not only is the mortgage lender likely to discover the truth but is also likely to be discouraged by the dishonesty. If such an instance happens then there is likely to be no other outcome than denial of your loan application for the simple reason of abuser of a loan approval process which is in fact intended to protect both the lender and the borrower from a future default and foreclosure.

Loan to Value Ratio [LTV]

The loan to value ratio or the LTV is a convenient way for the mortgage lender to measure the risk that the mortgage loan signifiers. The loan to value ratio is the ratio achieved by dividing the loan amount by the property is appraised value. For example it’s appraised value of the property is $200,000 and you take the home loan for $150,000 then the loan-to-value ratio is 75%.

The mortgage lenders like to have a lower loan to value ratio because it represents the lesser risk to them. In order to have a lower loan to value ratio the borrower has to make larger down payment. The mortgage lender considers this to be a lower risk proposal because they believe that the more money that the borrower has invested in the property the less likely he is to default on future payments. The more money that the borrower has invested in the property the less likely he is to walk away from the mortgage loan when faced with financial hardship in the future. Conversely, higher the loan to value ratio the higher the risk to the lender. Usually 20% is considered to be the magical figure for down payment. Most of the lenders feel confident in giving out a mortgage loan when the borrower makes at least 20% of the purchase price of the property is down payment. The underwriting guidelines for the LTV also differ from one lender to another. A portfolio lender may be more comfortable with a higher loan to value ratio. In the earlier years it was not uncommon for mortgage lenders to finance hundred percent of the appraised price of a property. But in the current date and times with more stringent and strict underwriting guidelines hundred percent financing is not available. Also, making less than 20% down payment on the appraised value of the property will result in additional charges such as the mandatory private mortgage insurance and even the payment of property taxes in advance for 6 months to one year to be kept in an escrow account managed by the lender.

Traditional Underwriting Guidelines

The complete underwriting process may be a little different from the preliminary approval or not and that a mortgage lender can give you based on the information that you provide him through an automated underwriting system. The mortgage lenders now have the ability to input the information you provide them to a software which has a standard approach all across the country to approve or deny your application within minutes. One such popular underwriting approval software has been developed by Fannie Mae. However, if your application requires manual underwriting, the underwriting procedure can differ from one lender to another because the human element is now involved. 2 different underwriters can evaluate the same loan application and reach different conclusions regarding the amount of risk involved with making the loan. When you take a month gets you give the lender the right to take away the home from you and sell it to pay the balance due on your loan if you:

1) do not make the payment on your mortgage loan and let your account becomes delinquent.

2) failed to pay property taxes.

3) let your homeowners insurance policy lapse.

That the lender can take in order to sell your property to satisfy the market state is known as foreclosure. Lenders do not like foreclosures because of the additional costs that it involves, which makes it financially judgmental to both the parties involved and it gives the lender bad public exposure. If a lending institution has too many foreclosures, state and federal bank regulators begin questioning the lenders judgment.

The lending industry is always trying to find better ways of being able to underwrite the loan application accurately so as to not have any foreclosures on their hands. The underwriting process also evolves with the market conditions.

Factors Used to Determine the Creditworthiness Of a Borrower

The lenders look at various factors and information to determine the creditworthiness of the borrower. These are some of the common practice that the mortgage lender looks at.


The integrity of the borrower suggests how he is going to deal with the mortgage debt in the future. The integrity of the borrower becomes even more important if a situation arises in which the borrower finds it difficult to meet the mortgage payment due to financial difficulties. A borrower with less integrity might shirk his responsibility for the loan and walk away from the home specially in him and circumstances where the value of the home has depreciated to be below the balance on the mortgage loan.

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Proving Income and Job Stability

During the initial part of the 2000s, namely from 2000 to about 2005 it was ridiculously easy to get mortgages on no documentation basis. The word-of-mouth information that many people provided the lender with and cursory documentation were able to get approved for a mortgage loan. No proper check was made into the borrowers income, assets or is existing debt liabilities. Borrowers claimed false information on their application forms in order to borrow the amount that required. However this trend has fast changed.

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Debt to Income Ratio

The mortgage lender will also take into account the amount of debt that you already. While the lender may ignore the very short-term debt that you’re likely to pay off in the next 6 to 10 months it will count the revolving credit on your credit card, balance on your existing automobile loan, existing student loans, personal loans etc.

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