What do Home Loan Underwriters Look For?

If you’ve ever wondered what home loan lenders look at when qualifying home buyers, you'll want to read this.

Seattle mortgage lenders are more lenient today than many think. But it still pays to be ahead of the game when applying for a purchase. So what do Seattle mortgage companies look for when reviewing loan applications?

The Two Most Important Factors Lenders Look At Are:

1. Willingness to pay
2. Ability to pay

They’ll also weigh:

• The likelihood that you’ll continue to pay
• How protected they’ll be in the worst case scenario that you don’t pay

So how do the different Seattle mortgage lenders evaluate these factors?

• Past performance
• Current situation
• Likelihood of continued performance
• The asset being pledged as collateral

Credit History

Credit score is just a rough indicator of creditworthiness and history. It is an easy to use metric for banks and Wall St. to use to make, sell, buy, and trade home loan debt. But underwriters look at more than credit score. They want to be sure that your credit score is justified, and is not just a glitch in the matrix.

These factors can be make or break:

• Length of time since major negative credit items (foreclosure or bankruptcy)
• Length of time credit lines have been open
• Amount of credit others have extended to you
• Timely vs. late payments
• How you use your credit (how maxed out you are, or not)

Together these factors show how willing you have been to pay back other lenders. And how well you have done at managing your finances.

Income

Your income demonstrates your ability to pay. Willingness is great. But all the good will in the world won’t help much if you don’t have the ability to repay. While some borrowers see this as an underwriting roadblock that they have to overcome, it is really a safety measure that protects everyone. Good WA mortgage lenders will help ensure that you are taking out a sustainable loan that you’ll be able to maintain over the long run.

They say the greatest predictor of future performance is past performance. So lenders will look at your proven income earning capacity, over the past 2 years, not what you hope to earn in the future or just started earning (bonus, commission, OT). The one exception to this may be new university graduates in high paying fields like medicine. They’ll look for a stable two year history of employment in the same career field. Note that this doesn’t have to mean the same job. You could have been a computer programmer at completely different companies, but have essentially been in the same role. Or you could have held different positions, but in the same industry. This is where having a great WA mortgage broker in your corner can really help. They know how to best explain these quirks to underwriters. And help you avoid sabotaging your own loan application.

Income verification is also used to determine DTI (debt-to-income) ratios. This is the percentage of your monthly income that you have pledged in outgoing liabilities. For example; if you earn $10,000 per month, and all of your monthly housing, car, and credit card payments add up to $3,000; you have a 30% back end DTI ratio.

‘Payment Shock’ is another sneaky mortgage loan application killer. It takes an experienced eye and mortgage loan officer to help preempt small quirks like this from derailing home loan applications. Payment shock happens when borrowers make a big leap up in housing payment. For example; you are moving from a $500 per month rental payment to a $2,000 per month mortgage payment to buy a house in Seattle, WA, that’s a big jump. Even if you are earning $10,000 per month, and have no other debt it is a sizable leap. Your Seattle mortgage broker can help you overcome potential issues like this by highlighting your ‘compensating factors’.

Your assets also indicate how well you may be able to continue to handle mortgage payments if the unexpected happens. Having a little savings makes the lender feel a lot better. In fact, many would rather loan you more money, or a higher loan-to-value, and have you keep cash on hand. That way if you lose your job, or get sick for a few weeks you won’t miss any payments.

Mortgage lenders also measure risk by how much equity borrowers have, and what direction property prices are headed in. For example; using a down payment grant can lock in $10,000 or $20,000 in equity in a home, even if the borrower isn’t putting down any money from their own pocket. Lenders know that most borrowers will do whatever they can not to walk away from a home that has $20,000 or more worth of equity, sitting in it. With Seattle mortgage lenders bullish on the state’s housing prices going up for the foreseeable future, they are also more generous and eager to lend than when they expect things to slow down.

Getting Ahead…

There are many factors that Seattle mortgage lenders look at when qualifying home buyers. By getting to know these items, and having the best mortgage broker or loan officer in your corner, you can look great to lenders, fast track approvals, and get the best mortgage deals.

Need more help understanding the qualifying process? Contact us for a free consultation. Or get a quote in minutes to find out how much you can afford.