Underwriting from one lender to another varies slightly, but these are the basic
guidelines they use and a good example to direct your attention before you pay for a mortgage credit report. 1. Start with the basics: Review the applicant’s name, address, social security number, and date of birth. What does the applicant’s employment information reveal about his or her earning potential? A stable employment history indicates that the applicant is likely to earn the funds necessary to repay the loan. Mismatches of the applicant’s basic information with other documents or a former address close to the new property are red flags. 2. Payment history: An applicant’s housing obligation payment history is an indicator of how he or she will handle mortgage payments in the future. Look out for late rent or mortgage payments. Were these exceptions, or did the applicant frequently make late payments? To qualify for a loan, applicants should not have more than one late housing obligation payment in the past 12 months, but some lenders do not make an exception so you should ask the loan officer before making an application. “The lender must verify and document the previous 12 months’ housing history even if the borrower states he/she was living rent-free.” Beaware that private mortgages and other housing payments may not show on the credit report. Always ask for cancelled rent checks, rental ledgers, VORs, VOMs, copies of money orders, and the like, to ensure good insight into an applicant’s housing obligation payment history. 3. Debt-to-income ratio/amount owed vs. credit available for FHA applicants: An aggressive lender accepts ratios between 31 percent (front end) and 43 percent (back end). Higher ratios need AUS (automated underwriting systems) approval. When applying for a loan installment debt with less than ten payments remaining may be excluded from the ratio, as long as the monthly payment does not negatively impact the applicant’s ability to make mortgage payments on time once the loan closes. In addition, an applicant with installment debt must have at least three months worth of liquid funds. Federal student loans may be excluded from the ratio if it they are deferred over 12 months after closing. 4. Credit history: Does the applicant have a history long enough to allow for predictions about his or her ability to repay a loan? How frequent are late payments? How high is the past due amount? Are derogatory items current, or are they from the past? Are there are signs of improvement in the applicant’s credit history? Take all this into consideration when evaluating the applicant’s credit history. “Generally, a borrower is considered to have an acceptable credit history if he/she does not have late housing or installment debt payments, unless there is major derogatory credit on his/her revolving accounts.” 5. Courthouse records section/public records: Red flag items like bankruptcies and bank liens are listed in this section. To qualify for a loan, all judgments must be either satisfied or placed into an agreeable repayment plan. Applicants must provide evidence that payments were made in accordance with the agreement for a minimum of three months. Mortgage foreclosures may be acceptable if they happened at least three years ago. The minimum discharge for bankruptcies is two years. Under certain circumstances, the minimum requirement for foreclosures and bankruptcies can be reduced, as stated in the HUD handbook 4155.1. Instead of solely focusing on a client’s credit score rating, some lenders look at the bigger picture when assessing the risk of a loan. Companies that retain servicing rights, have the flexibility to evaluate and identify credit-worthy borrowers who are not readily apparent to large corporate underwriters.
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Dan GarciaTrevana Properties is a placement company working with a variety of hedge funds, REIT's, commercial banks, specialty boutique lenders, private investors and other funding sources not widely known to the general public. Archives
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