Little Known Facts on the Factors that Get You Qualified for a Home Loan

In my previous blog, I mentioned the four factors that you can control when it comes to helping you get qualified for a home loan. Think of these four factors like the four legs of a chair. If one leg is weak, cracked, or broken, then the chair can not do it's job.

Just like a chair depends on those four legs, your home loan qualification depends on these four factors:

1. Credit

2. Employment

3. Assets

4. Debts

I talk to a lot of clients, from all walks of life, about these four factors. Believe it or not, many clients (whether first-time home buyers or clients who have bought several homes in the past) have misconceptions about at least one of these factors. Maybe it's because they've never bought a home-- after all, you don't know what you don't know. Or, maybe it's because the last time they bought a home was in the late 1990s ("Ah, the good ole days!" they'll say to me.). Either way, the rules governing over these factors have changed over time, and continue to change. In today's market for home loan solutions, there are several "little known" facts that I often find clients don't know, and because I believe knowledge is power-- and I like to empower people-- here are some of these little known facts about each home loan qualification factor:

LITTLE KNOWN FACTS ABOUT CREDIT WHEN IT COMES TO YOUR HOME LOAN QUALIFICATION:

• The score you see on your credit monitoring service (i.e., Credit Karma or the monitoring service provided by your credit card lender) is not your "mortgage" credit score. The software that all banks and lenders have to use to analyze credit for a home loan produces a different number than what you see on these credit monitoring services. This is because credit monitoring services are showing you a credit score that is more reflective of if you were to apply for smaller lines of credit (i.e., revolving lines of credit or personal loans).

• Medical collection debt on your credit doesn't necessarily mean you can't buy a home. This is not always the case for every borrower. But, I can tell you from experience that I have qualified clients for home loans and helped them obtain final approval with existing medical collection debt on their credit report.

• When it comes to qualifying for a home loan, it's not just the number (your FICO score) that is considered. Your credit history is also a very large factor. A few items that are considered in your credit history include:

  • The age of your oldest line of credit;

  • The payment history on all of your open lines of credit, installment loans, mortgages, student loans, etc;

  • Whether you have had a significant derogatory event (i.e., bankruptcy) in the past;

  • and more.

NEXT UP, LET'S TALK ABOUT HOW EMPLOYMENT AFFECTS GETTING YOU QUALIFIED FOR A HOME LOAN:

• Your employment history (covering the most recent two years) is just as important as your current employment. If you have changed jobs in the last two years, that doesn't automatically disqualify you for a home loan, but it is important to discuss this history with your mortgage consultant to determine if it will affect what type of home loan you qualify for.

• If you have been unemployed in the last two years (and with COVID-19 during 2020, that's not a stretch of the imagination) or have been on maternity leave, for example, it also does not mean you are automatically disqualified for a home loan.

ASSETS, MORE SPECIFICALLY 'LIQUID' ASSETS, ARE AN IMPORTANT PART OF GETTING YOU QUALIFIED:

• Disclosing all your assets doesn't mean you intend to use all of it for the purpose of buying your home. Many lenders require "reserves" for final approval of your home loan. The "reserve" requirement is different for each lender and each loan, but as an example: if your monthly house payment is $2,200, and if your lender requires six months of reserves, then in this case, we would need to document $13,200 in assets that you do not intend on using for the purpose of buying your home. Most times, a 401K or other retirement fund is the best and simplest way to document reserves.

• A car that is paid in full is an asset, but it is not a liquid asset. It is only liquid after it is sold.

LAST, BUT DEFINITELY NOT LEAST, LET'S TALK SOME LITTLE KNOWN FACTS ABOUT DEBTS:

• Not all of your debts are necessarily listed on your credit report. For example, if you pay child support, then this monthly obligation needs to be counted as a debt in your home loan qualification. As another example, if you bought a car or other recreational vehicle that is financed from a "buy here pay here" business, then that debt may not be reporting to any of the credit bureaus, but it is still essential that you tell your mortgage consultant about this obligation. If you don't, and it is discovered at any time throughout the loan process, it could mean the difference from being able to get your loan approved or not approved. So, the best policy is to disclose all of your debts to your mortgage consultant, regardless of whether it is on your credit or not, so that he/she can do a thorough analysis of your home loan qualification and ensure a smooth loan process from the time you go on contract to buy a home to closing day.

• Some debts, depending on the type of home loan you qualify for, can be excluded under certain circumstances. For example, if you have student loans, and you are currently on an income-based repayment (IBR) plan that documents your monthly payment as $0 per month, then regardless of the balance of your student loans, it is possible that the monthly obligation can be documented as $0 per month (depending on the type of loan). It is important, however, not to confuse an IBR plan with a COVID-19 forbearance. Student loans that are currently under COVID-19 forbearance (and, let's face it, currently, that's a large percentage of Americans), with a payment of $0 per month must be calculated as a debt based on your total student loan balance. For example, if your total student loan balance is $75,000, then regardless of whether you are on a COVID-19 forbearance, a certain percentage of this balance must be counted as a monthly obligation. And, that percentage is determined based on the loan type you qualify for.

These are just a few of the little known facts on the four main factors of your home loan qualification (wow, try saying that 10 times fast, lol). If you're not sure whether all four factors are strong enough to get you qualified, then maybe it's time to talk to a trusted Florida mortgage consultant. The difference between me and a private bank, is that I have access to more lending solutions, and will take more time to help you get qualified if one of these factors are in need of a little nurturing. On the other hand, if all four of these factors for you are strong, then the difference between my services and any other lending institution is that I have access to a diverse portfolio of Florida home loan solutions and a deep understanding of these factors. In addition, I work with my clients to understand their financial goals surrounding their desire to buy a home, which proves to benefit them in a multitude of ways-- not just by helping them obtain an excellent home loan that best serves these goals-- but also provides a superior lending experience from start to finish that centers around you and your family, not just the factors of what makes you qualified.

(NMLS #1682906)