Friday, November 21, 2014

How Do Mortgage Loans Get Approved?


Here's some great tips that could simplify one of the more complex issues that many people struggle with when getting a new mortgage. It has to do getting your loan approved quickly, and the role that your credit history plays.

There are four main factors that an underwriter, (the person that examines loans and makes approval decisions) considers when analyzing a loan applicant's file for approval.

A) Collateral - (value and quality of the subject home).

B) Equity - (the source of down payment funds).
1. Likelihood that the applicant might allow this money to be lost.
(Borrowed Funds=High Savings=Low)

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C) Ability To Repay the Loan (income & credit obligations).

D) Willingness To Repay the Loan (credit rating).

I'm going to focus on credit rating. This issue generates a lot of questions. However, if you understand a few things about your credit report, it can save you time and effort.

Every home loan application must be accompanied by a credit report. This report will be generated just after you've applied for a loan. This report is an important part of the application file. It helps the lender to determine the relative risk that they may be incurring by making the proposed loan.

Every loan applicant is now given a score with his or her credit report. It's most commonly called a "FICO" score. Many lenders are emphasizing this score as the best indicator of an applicant's credit rating. The company that helped develop the scoring system is called Fair, Isaac & Co. According to Fair, Isaac & Co., the types of information that are used to develop the score are:

- Payment History
· Public record and collection accounts.
· Severity, recency and frequency of delinquencies.

- Outstanding Debt
· Number of balances recently reported.
· Average balance across all trade lines.
· Relationship between total balances and credit limits.

- Credit History
· Age of oldest credit account.
· Number of new credit accounts.

- Pursuit of New Credit
· Number of inquiries and new account openings in last year.
· Amount of time since most recent inquiry into credit.

- Types of Credit In Use
· Bankcards, travel, department stores, and installment loans...

All credit report information originates from the credit grantor and is sent to three major credit repositories. All information may remain on your credit report for up to seven years. Providing proof of any errors can help with the loan at hand, but items that need to be disputed or permanently corrected must be done with these three companies, or they will continue to appear on future credit reports. These three are the source of all credit report information. They are:

· Equifax
· Experian
· Trans Union

There are some great companies doing business today in the field of credit repair. By legally disputing items on one's credit report, some of these firms have had great success in getting negative marks removed from reports.


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