For purchase or refinance, whether you’re an established homeowner, first time buyer or a real estate investor, the constantly changing landscape called the mortgage approval process can be challenging to negotiate. You have your specialty and this is mine! To be ever aware of the most updated program guidelines and requirements to plot a course of successful completion at the best terms that you qualify for. This page was created to give you a thorough outline of some of the important components involved in getting qualified for a mortgage loan.
Lenders approve borrowers for loans secured by real estate, based on a standard set of guidelines that are determined. Again, all lenders have their own specific variables in mind regarding the type of loans that they like and will approve. The following definitions are the broad stroke components of a mortgage approval:
Debt-To-Income (DTI) Ratio
A borrower’s DTI Ratio is a measurement of their income verses monthly credit and housing liabilities. The lower the DTI ratio, the more confident the lender is about the borrower’s ability of making the payments based on the future loan terms.
Loan-to-Value, or LTV, is a term lenders use when comparing the percentage of the outstanding loan amount verses a property’s value. The lower the LTV, the more confident the lender is about making the loan. If a property’s loan is greater than 80% LTV, then the borrower may have to have mortgage insurance accompany the monthly payment.
Lenders look at credit scores and history to determine the future payment history of a borrower. However, if you review my loan programs page, you will find that you don’t have to have perfect credit. And, there are some programs available for those with limited credit and others that will allow borrowers to use alternative forms of credit such as rent payment history to qualify for a loan.
The type of property and whether you plan to occupy the property, use it as a second home or rental, plays a major role in securing financing. Owner occupied properties are considered to be the most conservative.
Whether you’re looking for 100% financing for a purchase, a simple way to save money on your existing loan or a rehab loan, each mortgage program has its own qualifying guidelines. There are government insured loan programs, such as FHA, USDA and VA home loans, as well as conventional and portfolio financing. Please see my Loan Programs page for many more specifics on the various programs available today.