The Main Things That Mortgage Lenders Look For
Mortgage lenders are lending in a very tenuous market. Housing prices are still falling, jobless claims are still high, and economic risk is not allowed for most lending institutions. Mortgage lenders, specifically, are scrutinizing each and every application to ensure that government-mandated guidelines are met and the risk of fraud is totally mitigated.
The respectable lender is looking at a few basic criteria to begin the home financing process. To begin with, credit scores and credit history open the door for consideration. At this point in most lending, a minimum of 640 FICO score is required for any type of financing.
Furthermore, a paid-on-time history of credit, especially for housing liabilities, is required. For many potential borrowers, the realities of layoffs, corporate downsizing, and company shutdowns have caused late and missed payments. Unfortunately, this adversely impacts whether home financing can be extended.
Secondly, job history and job income are reviewed. Typically, a mortgage lender is looking to review a 2-year work history. This does not mean that the applicant had to have the same job for the past two years, but rather a working history covering at least the past two years, preferably in the same line of work.
Proof of income via paystubs representing the most recent 30 days worth or earnings, W-2 forms for the previous two years and federal tax returns covering the past two years will all be reviewed and verified.
Assurance that the lending a client is seeking will be able to be repaid is crucial; one's income has to be scrutinized for that reason. And, in an effort to dissuade mortgage fraud, those items are verified through the IRS, the employer and other providers.
Thirdly, the home in question is examined by a third-party. An appraisal, performed by a licensed appraiser, is done to verify the collateral value of the home. All lending is based upon what security there is behind it.
The home value, which may very well be different than what homes are listed on the market for, is based upon closed, non-private sales, usually within one mile of the home. The home value allows the lender to determine which financing option will work best and how much equity may be used.
There are some other items that will be reviewed as well, such as assets, title, lien and judgment searches, homeowner's insurance policy, and property taxes. The path for home financing can be a bit heavy on documentation, but in light of the banking climate today, it should stand to reason that this would be the case.
Most mortgage lenders will provide a no-cost, no-obligation review of the necessary criteria to determine a client's eligibility. A phone call or an email exchange will allow the licensed loan officer to have the pertinent information to provide a client with the right course of action.
The client should be aware that it is his/her right to ask questions of the mortgage lender. Take the time to become educated as to how the process works and what can be expected.
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