Compensating Factors Required To Qualify For A Mortgage

Compensating Factors is a term that I here fairly often, but most of the time it is being used improperly by those that really don't understand what  Compensating Factors Are Required To Qualify For A Mortgage.  Compensating Factors are mainly used when a Borrower exceeds Underwriting Guidelines such as the required Debt-To-Income Ratios to qualify for a Mortgage.

There are very few Compensating Factor that can be used by a Borrower to qualify for a mortgage when the Borrower exceed the Underwriting Guidelines for the Mortgage Program that they are applying for.  However, those that do not understand what Compensating Factors are, seem to think that they are more extensive then they are.

There are only a few Compensating Factors that can be used, and they mainly fall into the categories:

• Housing Expense - The Borrower has demonstrated over a period of time (12-24 months) that they are able to pay a mortgage payment that is equal to or greater than the mortgage payment that they are applying for.
• Downpayment - The Borrower is able to put down 10% or more.
• Savings - The Borrower can demonstrate through bank records that they have a history of being able to save money.
• Previous Credit History - The Borrower credit history clearly shows that they are disciplined enough to handle a higher monthly payment (this is a tough one)
• Non Usable Income - Borrower has other income, but can not be used to qualify for a mortgage.  An example of this would be:
• Income from second job that can not be used
• Income from spouse that is not on the mortgage
• Child support that is not court ordered
• Food stamps
• Minimal Increase In Housing Payment - Mortgage payment and other housing expenses are about the same as they are paying now.
• Substantial Cash - This is one time that mattress money might be considered, or other deposits that can not be documented.
• Potential For Increased Income - Recent college graduate such as a doctor, lawyer, engineer, etc who is just starting out and has a high potential for more income.
• Spouse Returning To Work - The Borrowers spouse has been unemployed for a number of reasons, and is about to, or has just gone back to work.  But the spouse will not have been employed long enough before the closing to use the income

These are all reasons that could be used as a Compensating Factor, but in most cases their will have to be a combination of a these factors in order for the Underwriter to override the Mortgage Program Guidelines.  Most Underwriter are very hesitant to use Compensating Factors to qualify a Borrower for a Mortgage, so the Compensating Factor(s) will have to be very well documented.  

As you can see if a Borrower can meet the Compensating Factors Required To Qualify For A Mortgage that I have listed above, they do have hope to get approved for a Mortgage, but it is a slim hope in most cases. 

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 Info about the author:

George Souto is a Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com