Things To Remember When Getting A Loan And Things To Watch Out For

Things To Remember When Getting A Loan And Things To Watch Out For

What do I need for a loan pre-approval?

  • 1.   Income:  Your monthly income determines how much you can spend each month on your monthly expenses.  If you are buying a home, the following things are considered monthly debt.

  • a.  Things that can be considered as income include all of the following for your main employment:  Salary, hourly wages, bonuses, commissions, dividends or interest income, net rent as well as possible other types of income.

  • b.  Things that cannot be considered income are new part time jobs, cash payments that are not documented, income that was not reported on your taxes, expensed income and several other types.

  • 2.  Monthly Payments/Liabilities:

  • a.  Monthly Payments including car payments, credit cards, student loans, furniture store payments and almost any other payment that you had to apply to get.

  • b.  Home Expense payments including your principal and interest payment, monthly home owners insurance, taxes, association fees, mortgage insurance, second mortgage payments, all other real estate loans that you have with that homes taxes, insurance, etc.

  • 3.  Credit Scores:  Your credit score determines the minimum requirements that underwriting will look at.  Normally the lower the score, the better other things in your financial life need to be.

  •  a.  580 is normally considered the lowest score that a borrower can get a conforming Fannie Mae or Freddie Mac loan.  When qualifying for a FHA loan with under a 640 credit score, other things are taken into account:

  • 1.  Payment Shock- Is your new house payment within 10% of your current rent payment?

  • 2.  Are you putting down at least 5% for a down payment?

  • 3.  Is your down payment from your own funds and not a gift?

  • 4.  Have you been working for your current employer for at least 5 years?

  • 5.  Have you taken Home Buyer Counseling?

  • 6.  Do you have at least 1 month’s reserves after closing of the PITI from your own funds?

  • 7.  Have you paid all of your installment and/or other mortgage payments on time for 12 months?

  • 8.  Do you have other income that you are not using to qualify like bonus, overtime or commissions?

  • b.  620 is the minimum credit score required for a VA or USDA loan.  Borrower will have to have other compensating factors to be able to qualify between 620-639.

  • c.  640 is normally the score that FHA, VA, USDA and Conventional loans require in order to not have to take compensating factors into consideration.  Conventional Loans require a 640 or higher credit score.

  • d.  640 is the minimum score that is allowed for down payment assistance with MHFA. 

  • e.  680 credit score is the minimum score for a 3% down conventional loan with no mortgage insurance (MHFA program).

  • f.  720 is the minimum score for a 3% down conventional loan with upfront mortgage insurance (MHFA)

  • 4.  DTI/Debt to Income Ratios:  Debt to Income is the amount of debt payments per month divided by the amount of income per month.  If you have a $400 car payment, $100 credit card payment and a $1500 loan payment and your income is $4000 per month, your DTI is $2000/$4000 or 50%.

  • a.  Conventional Loans normally have a maximum DTI of 50%

  • b.  FHA loans normally have a maximum DTI of 50%

  • c.  VA loans normally have a maximum DTI of 50%

  • d.  MHFA down payment assistance loans have a 43%, 45% and 50% depending on the loan.

  • 5.  Things to watch out for when getting a loan:  There are many things that can cause a problem when getting a loan.  Here is a quick list so you do not have any issues with your loan.

  • a.  Applying for any other loans, credit cards or anything that requires your credit to be pulled.

  • b.  Spending the money that you have in your checking and savings that was used for your loan approval.

  • c.  Spending the money that you need for your down payment.

  • d.  Spending the money that was used for reserves on your loan application.

  • e.  Having your ending statement balances lower than your loan qualifying balances.

  • f.  Increasing your balance and minimum payments on your credit cards.

  • g.  Changing your employment from 40 hours a week to less than 40 hours a week.

  • h.  Changing your compensation to bonus or commission from salary and hourly wages.

  • i.  Not having your down payments, reserves or bank balances seasoned for 60 days.

  • j.  Having employment or income discrepancies on your documents (and not telling your LO).

  • k.  Not having your last two years of taxes filed.

  • l.  Not disclosing ownership in the company that you work for.

Angela D Niece Headshot
Phone: 612-305-8487
Dated: July 23rd 2016
Views: 147
About Angela D: ...

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