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Record-Setting Week Means Good News for Mortgage Shoppers

December 18th, 2008

It was a record-setting week all around, which adds up to good news for mortgage shoppers:

While economic weakness is enough to give some home buyers pause, it is important to remember this same economic weakness is creating the extraordinary buying opportunity.

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Mortgage Application Declined? What To Do Next

September 3rd, 2008

These days you are more likely than ever to get bad news from your lender when you try for mortgage financing. Even borrowers with great credit and good jobs are jumping through hoops, paying surcharges for certain property types, and getting higher rates because they don’t have enough equity.

So what do you do when your lender takes a page from Nancy Reagan and “just says no?”  Well, Investopedia has a couple of ideas. If you’re new at the mortgage game and trying to buy your first home, you probably face a few obstacles–a short or spotty credit history, a small down payment, and maybe less time on the job than the underwriters would like to see. Investopedia says to find a co-signer to boost your income and credit. However, very few people who understand what’s involved with co-signing will want to do it. For one thing, your house payment will often be added to your co-signer’s debts when he or she tries to qualify for financing. Second, any missed or late payments will go on both your credit histories. And finally, if you default or file bankruptcy, the lender will go after your co-signer for the whole enchilada. So unless you are sure you will be perfect with your loan or you place no value on your relationship with your co-signer you probably don’t want to go that route.

Try other lenders. Go to FHA’s Web site and take a look at the underwriting requirements. FHA doesn’t have hard and fast requirements for time on the job and it will consider the reasons behind credit glitches when evaluating your application. FHAs’ qualifying ratios are higher than traditional lenders at 31% for housing divided by income and 43% for debt-to-income. Additionally, you can push the ratios even higher if you have two or more “compensating factors” such as “demonstrating the ability to accumulate savings and a conservative attitude toward the use of credit,” or having a job with “potential for increased earnings, as indicated by job training or education in the borrower’s profession.” Other ways to get around the income requirements are to have at least three months’ worth of expenses saved (called “reserves”) or to make a larger down payment. Similarly, FHA has more lenient credit and assets requirements. A good loan pro can tell you what they are and how you can qualify.

 Make some changes. You may have just missed getting approved for your loan. If that’s the case, find out what you need to do and take care of it. You most recent credit history is the most critical, and that’s probably the easiest and fastest way to improve your package. But if it’s income or assets that’s the problem, try a cheaper house. Or get your seller to pay to buy your rate down to a manageable level so you can qualify. Or ask a seller to pay your closing costs so that you can have more reserves after the loan closes–an extra two months of savings could make the difference. Or pay your debts down–once an account balance will be paid off in less than 10 months, many lenders won’t count it in your ratios–that can make a huge difference in your file.

The bottom line is that your loan professional should do more than smile and tell you you didn’t get your loan. He or she should  tell you what would make the biggest difference in your application and what you need to do to get approved.