All mortgage financing requires collection and verification of specific information about you and the property you are financing.
In general, credit, capacity and collateral are evaluated in the qualification process.
Credit: There are three major National Credit Reporting Agencies commonly used for creditworthiness determinations: Experian, Equifax and Trans Union.
Each reporting agency has their own proprietary method of calculating a “score” that is widely used in determining credit worthiness.
Debt to Income Ratio: This factor compares your income versus your monthly obligation in debt. Example; 30%/40%. In this example 30% of your gross monthly income represents your home mortgage payment, principal, interest, taxes & insurance divided by your monthly income while 40% represent the total percentage of all your monthly debt including auto payments, alimony, child support, credit card payments, student loan payments, etc. divided by your monthly income.
Most programs want to see no more than about 40% to 43% of your income required to pay all your monthly debt. There are exceptions to these guidelines, program to program, so don’t let this example keep you from applying.
Loan to Value Ratio: This factor establishes the equity you pay to purchase your home. If you put down 3.5% on an FHA loan, your loan-to-value ratio would be 96.5%. If you put down 20% on a conventional it would be represented as 80% loan-to-value ratio.
Employment: Another important variable in mortgage qualification is you job. Whether you are self-employed or W-2, most programs want to see 24 months in the same line of work. You can have different employers within that time, but typically you must stay within your industry for two years.
Processing: Your lender’s loan processor is tasked with the collection of information and verifications for submission. This process typically takes a few days to a week to complete. You as the borrower are ultimately responsible for providing items requested for your loan to be approved and funded.
Underwriter: The underwriter determines the risk of offering a mortgage loan to a borrower under certain parameters. In general, the underwriter is tasked with the analysis of credit, capacity to repay and collateral used in the determination of eligibility.
The underwriter has gone through extensive training in the determination of eligible criteria within mortgage loan programs available to the consumer. An underwriter may specialize in VA or FHA or Conventional loans, and may have multiple types of loan program training, allowing them to analyze many different types of loans and the criteria that make them eligible for funding.
The loan process typically takes 30 days which includes the appraisal when required. Your prompt delivery of required data can shorten that time by up to 50% depending on the loan program’s specific requirements.