The 4 Things you Need to Get Approved for a Mortgage!!!!

By
Mortgage and Lending with Cherry Creek Mortgage Illinois Residential Mortgage License LMB #0005759 Cherry Creek Mortgage NMLS #: 3001 NMLS ID# 158606

I wish it were that easy.  There are 4 basic things that a borrower needs to show a lender in order to get approved for a mortgage.  Each category has so many what ifs and sub plots that each box can read as it's own novel.  In other words, each category has so many variables that can affect what it takes to get approved, but without further adieu here are the four categories in no particular order as each without any of these items, you're pretty much dead in the water:

Income

You need income.  You need to be able to afford the home.  Without it, forget it!  But what is acceptable income?  Basically, it all depends on the type of loan that a borrower applies for.  Jumbo, V.A., USDA, FHA, Conventional, Super Jumbo?  Let's just say that there are two ratios:

  1. First Ratio - The first ratio, top ratio or housing ratio.  Basically that means out of all the gross monthly income you make, that no more that X percent of it can go to your housing payment.  The housing payment consists of Principle, Interest, Taxes and Insurance.  Whether you escrow or not every one of these items are factored into your ratio.  There are a lot of exceptions to how high you can go, but let's just say that if your ratio is 33% or less, generally, across the board, you're safe.
  2. Second Ratio- The second ratio, bottom ratio or debt ratio includes the housing payment, but also adds all of the monthly debts that the borrower has.  So, it includes housing payment as well as every other debt that a borrower may have.  This would include, Auto loans, credit cards, student loans, personal loans, child support, alimony....basically any consistent outgoing debt that you're paying on.  Again, if you're paying less than 43% of your gross monthly income to all of the debts, plus your proposed housing payment, then......generally, you're safe.  You can go a lot higher in this area, but there are a lot of caveats when increasing your back ratio.

What qualifies as income?  Basically, it's income that has at least a proven, two year history of being received and pretty high assurances that the income is likely to continue for at least three years.  What's not acceptable??????  Cash income, short term income and income that's not likely to continue. 

Assets

For the most part this is fairly simple.  Do you have enough assets to put the money forth to qualify for the downpayment that the particular program asks for.  USDA says that there can be no money down.  FHA, for now, has a 3.5% downpayment.  Some loans require 20% down.  These assets need to be validated through bank accounts and sometimes gifts.  Can you borrower the down payment?  Sometimes.  Generally if you're borrowing a secured loan against a secured asset you can use that.  But rarely can cash be used as an asset.  TALK TO YOUR LOAN OFFICER FIRST when discussing what's acceptable?

Credit

Whewwwwwwwwwwwwwwwwwwwwwwwwwwww.  This can be the bane to every borrower, every loan officer and every lender......and yes, to every realtor.  How many times has a borrower said my credit's good, only to find out that it's not nearly as good as a borrower thinks or nearly as good as the borrower needs.  Big stuff for sure.  620 is the bottom score (again with few exceptions) that lenders will permit.  Below a 620, then you're in a world of hurt.  Even at 620, people consider you a higher risk that other folks and are going to penalize you or your borrower with a more expensive loan.  700 is when you really start to get in the "as a lender we love you" credit score.  720 is even better.  Watch your credit!!!!!  Check out my post:

Stop and Think before You plan to Change Your Credit Scores!!!!!

Appraisal

In many ways this is the easiest box.  Why?????  Generally, there's nothing you can do to affect this.  Bottom line here is....."is the value of the house at least the value of what you're paying for it?"  If not, then not good things start to happen.  Generally you'll find less issues with values on purchase transactions, because, in theory, the realtor has done an accurate job of valuing the house prior to taking the listing.  The big issue comes in refinancing.  In purchase transactions, the value is determined as the

Lower of the value or the contract price!!!

That means that if you buy a $1,000,000 home for $100,000, the value is established at $100,000.  Conversely, if you buy a $200,000 home and the value comes in at $180,000 during the appraisal, then the value is established at $180,000.  Big issues....Talk to your loan officer.

For each one of these boxes, there are over 1,000 things that can effect if a borrower has reached the threshold to complete that box.  Soooooooooooo.....talk to a great loan officer.  There are so many loan officers that don't know what they're doing.  But, conversely, there's a lot of great ones as well.  Your loan is so important!  Get a great lender so that you know, for sure, that the loan you want, can be closed on!

 

 

 

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Re-Blogged 29 times:

Re-Blogged By Re-Blogged At
  1. Kim Boekholder Utah Real Estate 09/13/2010 02:43 AM
  2. Pat Haddad, ABR, CRS, ePRO, GRI 09/13/2010 04:51 AM
  3. Tammie White, Broker 09/13/2010 05:00 AM
  4. Geri Sonkin 09/13/2010 05:51 AM
  5. Roger Johnson 09/13/2010 12:15 PM
  6. Julia Odom 09/13/2010 12:26 PM
  7. Bob & Leilani Souza 09/13/2010 12:45 PM
  8. Erica Ramus 09/13/2010 02:32 PM
  9. Linda Lipscomb 09/13/2010 04:26 PM
  10. Missy Caulk 09/14/2010 01:26 AM
  11. Diane Guercio 09/14/2010 02:21 AM
  12. Adam R. Cohn 09/14/2010 02:23 AM
  13. Dub Walters 09/14/2010 03:00 AM
  14. Tammy Woodin 09/14/2010 03:50 AM
  15. Brian Clayton 09/14/2010 03:57 AM
  16. Roy Kelley 09/14/2010 03:57 AM
  17. Gayle Barton, Forsyth County Real Estate 09/14/2010 04:11 AM
  18. Donna Galinsky 09/14/2010 04:27 AM
  19. Jason Kardos 09/14/2010 05:01 AM
  20. Stacey Wilson 09/14/2010 05:30 AM
  21. Judi Henry 09/14/2010 08:11 AM
  22. Leigh Ann Holman 09/14/2010 08:44 AM
  23. Carrie Sampron 09/14/2010 10:31 AM
  24. Volodymyr Tretyak 09/14/2010 06:10 PM
  25. 1 ~Judi & Don Barrett & Chassy Eastep - Integrity 09/15/2010 12:42 AM
  26. Barb Van Stensel 09/15/2010 06:29 AM
  27. Leslie Ebersole 09/16/2010 07:27 PM
  28. Suzanne McLaughlin 09/18/2010 03:18 PM
  29. Michelle Gibson 07/02/2011 04:47 AM
Topic:
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Show All Comments
Anonymous
Anonymous

Hi Larry,

I will have to reblog this. Very timely. I had a client recently that spoke about his ex wife when he came to me to buy a condo. Through all the conversations about his kids, etc. it was always the ex wife. He had already been prequalified for a loan. I have even spoken to his loan officer and nothing negative was mentioned. When we found a condo that he liked and wanted to purchase THAT is when I found out the ex was still his current. They had been seperated for so long it had become second nature to refer to each other as ex's. Although they were still friends, on paper she hurt his credit so now we're waiting until the offical decree is done to go look at condos. 

Sep 14, 2010 06:05 AM #43
Rainmaker
1,430,900
Gene Riemenschneider
Home Point Real Estate - Brentwood, CA
Turning Houses into Homes

This is a good post.  Many people do not understand the basics of getting a loan and that it is more than downpayment and credit score.

Sep 14, 2010 06:11 AM #44
Rainmaker
1,431,940
Lyn Sims
RE/MAX Suburban - Schaumburg, IL
Schaumburg IL Real Estate

Great post Larry. Congrats on the feature.

Sep 14, 2010 06:31 AM #45
Rainer
32,203
Daniel Bates
MCVL Realty - McClellanville, SC
McClellanville and Awendaw, SC

As an agent in a mostly second-home and retirement community, I haven't had to deal much with loans, because my clients all have it worked out ahead of time and no what they can spend, so I never had to learn the mortgage jive.  This is one of the better written posts on a complicated subject, but you didn't try to dive to deep, just gave everyone a basic overview, thanks

Sep 14, 2010 06:58 AM #46
Rainer
219,173
Robert Amato
Bob Amato of Empire Home Mortgage Inc - East Meadow, NY

Tammie, #11, that is why we join Active Rain.To learn from professionals who are not in our areas.

Larry, this is a clear and concise explanation of the mortgage requirements. Great posting! 

Sep 14, 2010 07:13 AM #47
Rainer
32,673
Christopher Grimm
Windermere Real Estate - NW Inc Ballard - Seattle, WA

A brilliantly simple explanation for this process which I will share with my clients and of course giving you plenty of credit for it. Too bad you are not local!

Sep 14, 2010 07:51 AM #48
Rainer
452,419
Kimo Jarrett
WikiWiki Realty - Huntington Beach, CA
Pro Lifestyle Solutions

Great post, however, shouldn't the borrower qualify for both ratios to get the back end ratio amount, otherwise, they only qualify for the front end amount, don't they?

Sep 14, 2010 08:27 AM #49
Rainmaker
196,173
Leigh Ann Holman
Leigh Ann Holman - Century 21 Glover Town & Country - Clarksville, AR
REALTOR - Century 21, River Valley, Arkansas (479)774-5166

Congratulations on the feature!  You're quite possibly jamming up the re-blog system today ;)  Way to go!

Sep 14, 2010 08:46 AM #50
Rainmaker
272,683
Carrie Sampron
Home Smart Realty Group - Highlands Ranch, CO
ABR SFR & Kathy Sampron (303) 931-3629 Highlands R

Great post, thanks!  We're planning to reblog.  We don't get involved in the mortgage part, instead we leave it to the experts.  Carrie

Sep 14, 2010 10:27 AM #51
Rainmaker
1,434,122
Marte Cliff
Marte Cliff Copywriting - Priest River, ID
Your real estate writer

Anyone thinking of buying a home should check their credit scores well ahead of time. Between errors, identity theft, and credit card issuers lowering credit lines, a person could pay every bill on time every time and still have low scores.

Checking in advance allows some time to repair the damage.

Sep 14, 2010 06:51 PM #52
Ambassador
2,273,325
1 ~Judi & Don Barrett & Chassy Eastep - Integrity
Integrity Real Estate Services 118 SE AVE N, Idabel, OK 74745 - Idabel, OK
BS Ed, Integrity Real Estate Services -IDABEL OK

Larry,

Thank you for putting this together in this format.  It is easy for any consumer to understand.  With your permission, I'm re-blogging for my clients.

Sep 15, 2010 12:37 AM #53
Rainmaker
287,572
Barb Van Stensel
Chicago, IL

Larry, if there is room, I'm reblogging.  This is the basics but in terms for the consumer to understand.  Keep up the good posts!

Sep 15, 2010 06:25 AM #54
Rainer
17,740
Steve
Real Estate Photography - www.squarefootstudios.net - San Diego, CA

Good information.  From what I have been hearing, the way to get a mortgage in these uncertain times is to prove to the bank you don't need one. :)

Sep 15, 2010 05:21 PM #55
Rainmaker
1,003,899
Karen Anne Stone
New Home Hunters of Fort Worth and Tarrant County - Fort Worth, TX
Fort Worth Real Estate

Larry:  This is a great explanation, and would make either a great hand-out to give to buyers, or obviously something to give to Realtors who don't know very much about the loan qualification process, and about what is required from their buyers.  The more information they have... the easier the eventual process.

Sep 16, 2010 08:26 PM #56
Ambassador
941,230
Suzanne McLaughlin
Sabinske & Associates, Inc. (Albertville, St. Michael) - Saint Michael, MN
Sabinske & Associates, Realtor

Reblogged for my clients.  Wished I'd seen it one day earlier.  Could have brought it up on the computer and had the client read it himself.  Thanks. 

Sep 18, 2010 03:21 PM #57
Rainer
10,371
Lori Martinez
PEOPLES MORTGAGE "The SMART" Group #6274 - Phoenix, AZ
Personal Mortgage Consultant

Great basic info. Easy to read and understand. I will pass on the blog to my realtors.

Sep 21, 2010 01:20 PM #58
Rainmaker
70,752
Loan Survivor Real Estate Financing Expert
Purchases, First Time Buyers, Pre-Approvals, Refinance - Birmingham, MI

Wow, 60 comments!  I'm not sure what I can add other than great post:)

Sep 22, 2010 12:29 AM #59
Rainer
25,500
Andy Brown
Climer School of Real Estate - Arctic Bay, YN
Best Real Estate Training in Florida

Great posting by the way.

Kind of amazing when you think of what is really involved for us to get a closed loan.

Andy Brown
www.OnlineFloridaMortgage.com

Oct 05, 2010 04:36 AM #60
Rainmaker
110,925
Lewis Poretz
Bank of England Mortgage - Annapolis, MD
Mortgage Loan Officer - Lending in 50 States

Larry - just came across this post. Great advice and totally worthy of a reblog... 

The first thing I tell my clients after I book a deal these days is that this loan will not be like any other loan you have done. I tell them I am going to ask for documents you have never been asked for before. And I be certain to make the point there are little underwriting exceptions anymore and if borrowers just bite their tongue and get the necessary documents that are needed these days their loan will close. I can't tell you how many clients get upset because they didn't have to get that document last time.....    

Oct 11, 2010 01:20 AM #61
Rainmaker
273,464
Wayne B. Pruner
Oregon First - Tigard, OR
Tigard Oregon Homes for Sale, Realtor, GRI

What a great explanation. Even I could understand it! :>)

Oct 15, 2010 05:53 PM #62
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Larry Bettag

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