5 Things Lenders will Look For
Annette Bui| Updated May 2, 2020 | Mortgage Programs
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Credit
One of the first things a lender will look at is your
credit worthiness, do you pay your bills on time? As they say, history is a
good indicator of future repayment. If your credit is less than perfect, they
may accommodate based on higher interest rates. It is important to understand
the different tiers of credit scores and how it impacts you. The common
misconception is credit scores under 640 do not qualify. This is not true due
to the broad range of investors available; you can still qualify down to as low
as the 550-580 credit scores.
Affordability
while many government sponsored enterprises such as
Fannie Mae, Freddie Mac and Ginnie Mae will look at your gross debt to monthly
income ratios. There are various loopholes that will take place such as cash
reserves, credit scores, Veterans and FHA loan applicants get a bit more
leeway.
Down payment
Cash reserves for your down payment is important. Many
people have the misconception that you need 20% down payment, this is not true
as you can put down as little as 3% or even nothing at all in some cases. Down
payment can be 100% gifted from family members, must be in the same account for
at least two months prior to closing.
Employment
Duration of employment and income is a core factor in
qualifying. Lenders will want to see at least two years of being in the same
line of work. If you are on a commission basis, this may affect how your income
will be calculated. Always remember, lenders will use the more conservative
calculation. Meaning if you normally pull in over 100k a year and the most
recent year your income has dropped. The lender will go with the more recent
lower income.
Assets
Cash reserves are an important factor in any
transaction. If this is your first home, typically you are looking at enough
funds to pay up to two months of your principal, interest, taxes, and insurance
(PITI). Anybody that owns more than one financed property will need to show
enough reserves to pay up to two months of PITI per additional property owned.
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