| When you apply for a loan, there are 4 basic | | | | Lenders use debts, not living expenses. Debts |
| qualifications the lender will look at. They are your | | | | would be minimum credit card payments, car |
| credit score, your level of debt to the level of | | | | payments, and installment loans. They would not |
| income, your assets/reserves and the loan size | | | | include gas bills, cable bills or cell phone bills. |
| compared to the value of the property. Based on | | | | Reserves-Reserves are liquid assets that you hold. |
| these four criteria, the lender will be able to tell if | | | | They can include cash in the bank, stocks, bonds, |
| you qualify for a mortgage and if you do what | | | | retirement accounts and any asset that is easy |
| mortgage program you qualify for. Lets take a | | | | to liquidate. The lender will like to see a cushion of |
| look at each one. | | | | money in case of an emergency. They look at it |
| Credit-The lender will pull what is called a | | | | in terms of the monthly mortgage payment of |
| tri-merged credit report. This will give them credit | | | | principal, interest, property taxes and insurance. |
| scores from the 3 major credit bureaus. The first | | | | They will take this number and require so many |
| thing the lender will look at is your credit score | | | | months of it in reserve. This number can vary |
| number. These can range from 350 to 800. | | | | from two months up to twelve months or more. |
| Typically they will use your middle score. | | | | LTV-Loan to value. This is the ratio between the |
| Next they will look for any late payments. A late | | | | value of the property and the size of the loan. So |
| payment is one that is over 30 days past due. | | | | a property worth $100,000 with a loan of |
| The most important will be late mortgage | | | | $80,000 would equal an 80% loan to value. This |
| payments. Any late mortgage payment in the last | | | | ratio is important in determining how much money |
| two years will affect what program you can | | | | the lender will loan you. An 80% loan to value is |
| qualify for. Other late payments such as credit | | | | the standard cut off for first mortgages. There |
| cards will have a direct affect on your credit | | | | are programs that will go above 80% with either |
| score. Finally, the lender will look at the public | | | | a higher rate or the use of mortgage insurance. |
| record section. This is where any judgments or | | | | You can also use of a second mortgage to get |
| liens will show up. These can affect qualification | | | | over the 80% level. |
| and in many cases will have to be taken care of | | | | These are the four basic elements that most |
| in order to close the loan. | | | | lenders will look at when you apply for a loan. In |
| Debt to Income-Your debt to income level | | | | certain circumstances if you are strong in one |
| compares what you owe to what your income is. | | | | area, that might compensate for being weak in |
| Lenders use your before tax income (gross | | | | another area. These are general guidelines and |
| income) for this calculation. So if you earn $5,000 | | | | each individual borrower will have a different set |
| a month and your monthly debts are $2,500, | | | | of circumstances. |
| your debt to income ratio (DTI ratio) will be 50%. | | | | |