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Qualifying

Whether you are trying to qualify for a new home purchase or you are looking to refinance a home you already own, your ability to qualify for a new home loan will be determined by five factors: income, liabilities, assets, and credit, collateral.

Depending on the type of loan (Federal Housing Administration - FHA - Veterans Administration - VA - Fannie Mae or Freddie Mac - agency - or a portfolio loan), and the property disposition; these factors and the requirements associated with each of them will vary slightly. Moreover not all of these loan types are available to everybody, or some may not serve the borrowers stated goals and are consequently not solutions. Identifying the type of loan that best suites your needs is an important part of the qualifying process; and a professional familiar with the intricate details of each of these loans types should be consulted.

The requirements for qualifying for each of these loan types are known and identified by industry professionals as program guidelines.
Program guidelines while varying between loan types and programs are universal to all borrowers, which means if you meet the guidelines, you will be offered the loan.

The five primary factors that influence your ability to qualify for a home loan are: income, liabilities, assets, credit, and collateral. The documents that you provide relating to these factors is typically referred to as your supplemental paperwork.

Your income is compared to your liabilities and future housing payments to determine your debt to income ratio which the percentage of money you make that is spent on your monthly liabilities. A 50% debt to income ratio means you are obligated to spend 50% of your income to pay your current debts. Generally speaking if you have a 40% debt to income ratio you will meet qualifications (make 5000, spend 2000). When considering your debt to income ratio there are front end and back end calculations - the front calculation is your DTI in relation to the real estate expenses (principle, interest, taxes, and insurance), the back end is your total DTI. If your front end DTI is under 30% and your back end is under 40% you are in good shape. Also understand there are options if your DTI is higher than these benchmarks, however the higher your DTI the greater the chances you will not qualify, a back end DTI over 50% needs compensating factors, and a DTI over 60% is most likely going to be denied.

Your liabilities are any monthly expenses that you are obligated to pay. Most of your liabilities will show up on the credit report generated by your loan consultant, however if there is something that is not reporting you should bring it to the attention of your loan officer so they can include it on your application for qualifying purposes. Credit card payments, car payments, student loans, mortgages, personal loans, are a few of the expenses that are common liabilities. Child support, alimony or any other form of separate maintenance should also be included. While there are some debts that can be omitted, omission should be determined by the underwriter only, so for qualifying purposes include any and all liabilities when calculating your debt to income ratio.

Assets are a borrowers primary compensating factor. Assets illustrate to a lender the borrower has resources they can fall back on should their income suffer for any reason. The more assets a borrower has and can document the better. If a borrower is able to document enough assets (numbers are different for every case) they can turn an approval into a denial if income and DTI is on the acceptable edge. It should also be noted in certain transactions it is not uncommon for there to be asset requirements.

Credit, and your credit report give the underwriter a history of your borrowing which they can use as a tool to assist in determining the likelihood of your paying the loan back. In terms of credit score the underwriter will use your middle score (out of three), and if there is more than one borrower they will use the lower of the middle FICO scores. The higher the credit score the better, resulting in more favorable financing terms. In addition the credit score they will review your payment history, and any other relevant notes found on the report. It will also be used for determining liabilities the borrower is responsible for. A credit report is general good for 30 to 90 days.

Collateral for the loan you are trying to secure is the home you are trying to secure the home loan for. Consequently the home's value plays a role in your ability to secure financing. Known as your loan to value or LTV, your loan to value is the loan amount divided into the appraised value or purchase price, which ever is less (on a refinance the appraised value determines value for qualifying purposes). Some loans require zero money down, and are true 100% financing solutions. Other loans require down payments as low as 3.5% resulting in a 96.5% loan to value. The lower the LTV, the less risk the lender assumes and the better the financing terms. For qualifying purposes and to produce estimates value is estimated until you have the appraisal back.

These are the primary elements that make up qualifying for a home loan. That said this is by no means a complete summary of guidelines. Typical lender guideline manuals are hundreds of pages long, with many details specific to specific situations. Only after you have been properly qualified can an accurate rate quote be generated, rate quotes provided before a proper evaluation and your being qualified should only be used as a market gauge - albeit a valuable one to see whether or not working through the qualification process as worth the time and effort.

For this reason you need a competent and knowledgeable loan consultant that is familiar with the loan type and program you are interested in.

We welcome your questions and are prepared to qualify anyone interested in pursuing and reviewing their current market loan options.

831.325.6959 call us today.

California Bureau of Real Estate License 01792241
NMLS License 523235


1649 Calavo Rd. Fallbrook, CA 92028
831.325.6959 Phone
866.321.5467 Fax
email@culturemortgage.com

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