loan qualification 

    Lender assess:

  • Capacity to pay

  • Credit History

  • Collateral

"Capacity to pay, credit history, and collateral" are known as the 3 C’s of credit analysis. Lenders will review these criteria in determining whether to grant loan approval. Here is an introduction to these and some suggestions to help you obtain a trouble free loan approval:

Capacity to pay

This refers to the ability to make timely payments over the course of the loan. Considerations are given to both quantity and quality of income. Lenders will use a borrower’s income to calculate front and back end debt service ratios in assessing risk of default. Click here to see how these are computed and to estimate your debt service ratios.  Income has to be ongoing to be considered for loan qualification. Thus, salary and retirement income would be considered as on going sources but a one-time capital gain from the sale of securities or real estate would not.  Also, if there has been a job change, it is best to demonstrate continuity in the same or similar line of work.

Credit history (FICO Score)

This refers to a borrower’s history of making timely payments on past and present liabilities. Liabilities include: credit cards, auto loans and leases, lines of credit and mortgages. Over the last five years, several credit scoring models have become increasingly important in granting loan approval and in setting loan terms. The FICO score, developed by Fair Isaac and Company, is the most widely used. Some of the important factors of these models include: the number of late payments and how recent these were, the percentage of debt outstanding vs. debt available to be drawn, judgments and tax liens. Because of the increasing reliance upon credit scoring models, borrowers can now obtain very favorable loan terms without providing income documentation. If your FICO is about 620 or above, we are likely to be able to offer you an excellent No Point or No Cost loan. If your FICO is =>720, we can offer an interest rate reduction.  

Click here to obtain a free credit report to see if you qualify.

Collateral

This refers to the fair market value, proposed property use, and condition. In almost all cases, a Fannie Mae Summary Residential Appraisal Report is required in order to assess these factors. Lenders will then calculate a loan to value ratio (LTV) in assessing overall risk of default. The higher the LTV the higher the risk and thus the higher the rate and / or fees. Most loan programs are available for LTVs up to 80% with out interest rate or loan fee premiums. LTVs >80% have historically had greater risk, a small fee for mortgage insurance or a slightly higher rate is required. Loans over $750,000, and loans for second homes and rentals, have also historically had more risk. Thus, maximum LTV’s are lower and rates and fees are generally higher. Many of our No Point and No Cost loans offer reduced interest rates or fees for lower LTVs. Click here for a complimentary assessment of your home’s market value.