Every mortgage lender develops their own unique guidelines for evaluating the factors contained in a home loan application. These may change from time to time so that their portfolios stay “balanced”—that is, so that the cumulative risk represented by the entire batch of home loans do not exceed the level of risk they wish to assume.
Potential St. Cloud mortgage applicants are bound to be curious about which factors are more or less influential for that decision. Their curiosity is why you can find hundreds of “Top 5” and “Top 7” lists of “mortgage application factors”—and why home loan originators pay top dollar to advertise on them.
Given that the factors mortgage companies examine are hardly secret, it’s not surprising that all of the lists are pretty similar. It’s also true that the individual factors all have something to do with a single underlying element. (I’d call it the “hidden factor” if it weren’t right out there in the open). Here’s a typical list seen as it relates to that single underlying factor:
Down payment (underlying factor: size of loan). If, say, $50,000 will be available for the down payment, a $200,000 home loan would be easier to grant than one for $600,000. Many mortgage firms have relaxed their requirements—but inevitably look harder as a down payment percentage declines.
Debt level; aka Debt-to-Income ratio (underlying factor: size of loan). Lenders analyze an applicant’s monthly cash flow to determine how much will be available to pay the monthly mortgage payment. The size of the loan—thus amount of the payment—determines if that’s easily doable.
Loan type (underlying factor: size of loan). Conventional loans carry stricter qualifying factors than do other types. For instance, if the size of the loan is beyond the conforming loan limitation, jumbo loan requirements pitch in.
Employment history (underlying factor: size of loan). Starter homes requiring smaller loans are often right-sized for younger borrowers with shorter employment records.
Credit Score. Typical descriptions say things like, “Borrowers who need to finance more will need a higher credit score of 700 or above…” In other words (you guessed it), underlying factor: size of loan.
Success when applying for a mortgage loan does involve all these factors—and more—but that’s just another way recognizing the common sense notion that home loans are granted to those who can demonstrate the ability to repay. The last time that notion was abandoned, the global financial crisis ensued.
The corollary for house hunters is equally clear: determine your comfortable budgetary range first--then go out and find your new home. The mortgage lenders will fall into line—and I’ll be delighted to help!
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