Many People Try To" Cheat The System" To Get Loans Approved

Category: Finance, Mortgages.

Remember all those crazy adjustable mortgage rate deals a few years ago? Many excited young couples leapt on to the ARM bandwagon, enticed by low rates and less money down.

Good thing you weren t one of those shmucks, right? Now the word of the day is" foreclosure" . But are you going to get in the same trap they did? With so many people bailing out, you just might find a good deal out there. Many people try to" cheat the system" to get loans approved. Keep in mind these safeguards are there for a reason. I don t mean this in the illegal sense, but they fudge the numbers a little, or find a snaky broker to push something along they may not be able to afford.

Sure, companies don t want to lose their money, but when they tell you no, they re also protecting you. Underwriters evaluate the risk involved with loaning you money. Good lending institutions employ underwriters to handle their loans. Essentially they tell the lender whether or not it s a good idea to lend to you. Without underwriters lenders wouldn t be able to stay in business long enough to help you. Don t take it personal, it s a very exact method to determine the amount of risk involved.

Two institutions, FHLMC( Freddie Mac) and FNMA( Fannie Mae) set the guidelines for most lenders. Lenders who keep their loans, or" Portfolio Lenders" have more flexible standards, and don t neccessarily comply with Freddie or Fannie s standards. Lenders sell their loans on secondary mortgage markets to these institutions, who then resell the loans to investors, and banks, insurance companies. Don t stop at just one. They put you under the microscope to evaluate the risks involved. Shop around. The first step of course is obtaining a credit report( something you should do first) .

Integrity- Obviously they want to know: do you pay your bills on time? So what are they really looking for? Have you paid late? Chances are if you don t treat your other obligations with respect, you might not hold your word on this loan either. Have you defaulted? Your Job- Your income and job stability are very important as well.

Are you in an industry or at a company that is circling the drain? Are you a seasonal worker? These factors are examined, because without a job, you can t pay back your loan. Which ties in with: Debt to income ratio- Again, can you really afford this loan? Income is large consideration here. Are you already over your head?

DTI is determined by comparing your income to your homeowner expenses. They want to know. Property value- They want to make sure you aren t buying junk property. Which ties into: Loan to value ratio- This is another simple formula, how much are you borrowing compared to how much the property is worth? This is what your loan is backed by, and if you bail out, they dont want to be stuck with overvalued junk. This is why the bigger the down payment, the better your chances are of getting approved. Savings- How much do you have saved up?

When you minimize LTV, you improve your risk rating. Do you have any liquid assets, stocks or bonds? But you can get away with a 3- 4 month reserve if you put down more money. Lenders like to see a 4- 6 month reserve, in case of emergencies. A low LTV will lessen the need for a higher cash or asset reserve. It s not a mysterious method, or one that discriminates you, it s simply based on numbers, and your ability to pay, and likelyhood of sticking it out.

So this is what underwriters are looking for when they estimate the risk involved with loaning money to you. Be honest, and don t try to make things up that might give you an edge, because you just may find that you really can t afford that loan, and you ll end up hurting in the end when you foreclose.

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