Frederick County Short Sale Blog | Homes for Sale in Frederick Md

How to Look Good to a Mortgage Lender

With the tightening of credit over the last 2 years, its good to know just what banks consider a good prospect for a home loan.  Now more than ever, banks are looking at criteria that indicates the homeowner is most likely to pay their mortgage on time, for as long as they owe.  If you are considering buying a home this year, its best to try to think like a lender:

There are three aspects of your financial situation that lenders evaluate to determine the ability to pay back a loan:

1.  Capacity:  the ability to make mortgage payments on time.  
     a.)  income stability
     b.)  employment history
     c.)  savings
     d.)  debt ratios: monthly debt payment-to-income ratio 
                                  housing payment-to-income ratio
     e.)  cash reserves
     f.)  whether you are employed or self-employed

2.  Collateral:  the value of the property that will serve as the security for a loan.
     a.)  the difference between the amount of the loan and the value of the property.
     b.)  the lender needs to be able to sell the property at an amount that covers the loan if you default.

3.  Credit:  your ability to borrow money to be paid back over time.
     a.)  your credit score
     b.)  previous foreclosures and bankruptcies
     c.)  liens or judgments
     d.)  credit delinquencies

Added Note:  Lenders know that loans taken out to purchase a home or to reduce the amount of the monthly payment are statistically much more likely to be paid back than loans taken out to take cash out of the homes equity.  They also consider ARMs (Adjustable Rate Mortgages) to be higher risk than fixed-rate loans. In these situations, tighter lending criteria are used.

If you are thinking of buying in the near future, start working on your credit 6 months in advance.  You can use the time to shore up your credit score.

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The Highland Group