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What Lenders Look For Job History/Stability of Income - Lenders examine a borrower's employment history and the likelihood of continued income to help determine the person's credit risk. Numerous job changes, declining income, sporadic income, and changes into new fields of work can cause concern. Long-term, consistent employment with rising pay will usually permit the lender to conclude that there is a high likelihood that such employment, and the ability to pay the mortgage, will continue.

Credit History/Credit Score - Your credit history is a key factor in determining what programs are available to you. A credit score is a number that represents the likelihood that you will make your loan payment every month or whether you will default. A higher score is better than a lower score because it represents a higher likelihood that the person will make the loan payments each month. People who have better scores will usually have more loan choices than people who are considered high risk.

Present Debt Load - The total amount of debt you have will directly affect the amount of the home loan that you can get. When applying for a home loan, it is important not to take on any new debts like car loans or personal loans which can affect your credit score as well as increase your total debt load.

Funds to close - To approve a loan, lenders need to verify that you have the funds to make your down payment and to pay for closing costs. While there are a number of ways to obtain the necessary funds, lenders do not allow you to draw it from unsecured sources, i.e., credit cards. However, regardless of its source, money that has been in your bank account for more than 60 days is considered to be "seasoned funds."

Qualifying Ratios - On most programs, lenders will use ratios to determine how much of a loan you can obtain. These ratios represent what portion of your gross income is already allocated to other obligations (your "debt-to-income ratio"). In general, lenders want your debt-to-income ratio can be around 40% of your gross income. However, many factors come into play, and many people will qualify for a higher ratio.

These are obviously broad categories, and difficulty in one area does not necessarily mean that you will have any problems getting a home loan. But you need to be candid and completely honest with your loan officer. Lenders usually try to verify all of the critical facts upon which they base their decisions. The discovery of adverse information late in the process can make a lender wary, resulting in a borrower's proving every single detail contained in the loan application.

Quick Loan Links

Loan TV! Watch our videos to get smart about a bunch of common loan topics. If you want a DVD version of this that you can play on your TV, call and ask for one!
1. Intro to Home Loans
2. Loan Programs

3. Interest Only/Credit Issues

Interest Rates & Points Interest rates are the "cost" of money at any given time, and there are numerous factors that can cause those rates to fluctuate. The three primary factors affecting mortgage interest rates at any given time are:

Inflation rate - Inflation measures how much purchasing power has decreased for a certain amount of money. If inflation is rising, interest rates will likely be rising as well. In inflation is low, then there is a good chance rates will be dropping or will remain low with no upward pressure.
The strength of the economy - In traditional economics, if the economy is strong and growing, then there is upward pressure on interest rates. If the economy is slow or in recession, rates usually drop. Today's rates are near their 45 year historic low due in part to the economic statistics of the past year.
The Federal Reserve - The Federal Reserve acts as the "nation's bank." The "Fed" controls certain short-term rates and the money growth rate for the country. If the Fed thinks inflation is rising or that the economy is getting super heated, then they can raise interest rates making it more difficult for businesses to borrow money for new initiatives and, in turn, causing the economy to slow down. If the economy is slow and inflation is not a threat, the Fed will lower rates in an attempt to jump start the economy.

Points are usually associated with the cost of obtaining a loan. One point is 1% of the loan amount. Sometimes points are described as being in two categories, origination and discount.

An origination point is the fee that a lender charges to process and close a loan, while a discount point affects the interest rate of the loan. In practice, it makes sense just to add the two together so that you can compare different loan offerings. You may "buy down" an interest rate, i.e., reduce the rate on your loan, and, in turn, reduce your monthly payment, by paying an up-front fee at closing. In other words, if you can get a 6.00% loan for one price, you may be able to get a 5.00% loan rate, but doing so will require that you bring additional money to closing.

Heather Foster
(619) 665-2782 Team.At.SurfTheTurf.com

Representing Both Buyers and Sellers
On the Web at
http://www.SanElijoTeam.com
and other areas of San Diego County.
Last Updated: 9/4/2010;5:04 PM

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