Reverse Mortgage Solutions

Most people realize that having good credit scores is vital for getting a mortgage loan approved, but this is not everything that the lender takes into consideration. There are several key factors that a mortgage lender looks at when determining whether or not to approve a loan and only part of this information is contained in a credit report. This is why most people applying for a mortgage are required to present much more documentation than the lender can obtain independently.

One of these key factors is the applicant’s debt ratio. This is the ratio of an individual’s debt and expenses to his net income. The lender compares the potential borrower’s current debt load and living expenses with his income. This is why applicants are expected to provide pay check stubs, tax returns, and other documents that cannot be obtained from the credit reporting agencies. The ideal debt ratio is about 1.3, meaning that the applicant has about 30% more income than is required to pay for his current debt and expenses.

Another important factor that mortgage lenders look at is the applicant’s payment history, specifically looking for late payments. Mortgage lenders consider the timeliness of payments to be extremely important. This information is found in the credit report, but is given a different weight in the FICO score than the weight that the mortgage lender gives it. For this reason, the lender will review the applicant’s credit report in detail, beyond just the overall score, looking to see whether or not the applicant has a habit of making his payments on time. If the client has a number of late payments in his credit report, this is one instance where a letter of explanation appended to the loan application might be helpful in explaining the problem.

Mortgage lenders also look at the applicant’s other assets besides his regular income to determine if the applicant has the means of making an equity investment, or down payment. If the client has large additional assets and they are fairly liquid - like a large stock portfolio - this may help offset other factors, such as a less than optimal debt ratio. If the applicant has enough additional assets to make mortgage payments outside of his regular income, this is viewed favorably by most lenders. This information is usually not included in a credit report and is why a mortgage lender will ask for statements from the applicant’s brokerage accounts and retirement accounts (IRAs, 401(k), etc.).

Another factor that lenders take into account has nothing to do with the applicant’s financial position, but deals with the property in question. All mortgage lenders will require a comprehensive appraisal of the property that the applicant is seeking to purchase. This prevents the lender from lending out more money than the property is worth. Should the loan turn bad and result in foreclosure, it is crucial to the lender that the resell value of the property be enough to cover the amount originally lent out.

Knowing what the mortgage lender looks for can help the potential home buyer get their application in good form. The above can help the potential mortgage seeker determine what elements of his financial position should be changed or corrected to make approval more likely.