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Main Qualifying Factors for Refinancing

There are 3 main qualifying factors used toborrower takes a new job for less money? What
qualify a borrower for a mortgage loan:if  they  become  unemployed?
EQUITY,  INCOME  and  CREDIT.
* Low disposable income: This ties in to the
Everyone seems to be so concerned with theDTI%. Disposable income is what the borrower
interest rate on their loan and how to gethas left after all the reported monthly
the lowest one possible. The answer isobligations are paid. Remember, this has to
simple. Interest rate is directly related tocover utilities, automobile, taxes,
….RISK. If you want to lower interestgroceries, etc. None of those expenses are
rate, eliminate the risk of the loan to thefigured into the DTI%. Low disposable income
lender. Lenders look at risk based on theindicates the borrower is probably
same three qualifying factors: Equity, incomeover-extended and thus presents a riskier
and  credit.lending  scenario.
Equity  Risk  Factors:* Unemployed/ laid off borrower: Obviously,
if the borrower doesn't have a job or a way
* Limited or no equity = High LTV %: theto pay back the loan, it presents a high
mortgage loan is secured by the equity in thelevel  of  risk  for  the  lender.
property. If the property has little or no
equity,  it is a riskier loan for the lender.Credit  Risk  Factors:
* Poor marketability: If you are financing a* Late payments on the current or past
unique property such as a log cabin or a homemortgage accounts: The mortgage lender is
bigger or smaller than the homes in the areamost concerned with how the borrower has paid
it affects the marketability of the home. Inthe mortgage loans in the past. If they have
addition, mobile homes or manufactured homeslate payments in the past on mortgage
have  marketability  issues  as  well.accounts, it is a good indication that it may
happen again in the future- showing a level
* Short residential history: If you have notof  risk  to  the  lender.
lived in the property very long, you have
very little vested in it. You haven't paid* Late payments on other accounts: After the
down the loan much, and now you are trying tomortgage accounts, lenders look at the other
finance it again. This could be adding debtdebt obligations to see how the borrower has
on top of debt and is looked at as risky bypaid those. Although not often weighted as
the  lender.heavily as the mortgages, late payments on
other account still affect the level of risk
* Lack of comparable sales supporting value:inherent with issuing a mortgage to that
If homes are not selling in the area, it is aborrower.
risky loan to do. If the borrower defaults on
the mortgage loan, the lender may have* Derogatory Accounts: Derogatory accounts
trouble recouping the costs and investmentinclude foreclosures, bankruptcies, charge
they  made  into  the  loan.offs and collections. If the borrower has had
these issues in the past, the lender must
Income  Risk  Factors:weigh the level of risk and the probability
that  it  could  happen  again in the future.
* Low Income = High DTI%: If the borrower
doesn't make much money or has bills that* Low Credit Scores: This is an indicator
account for too much of the income that isthat the borrower has had some overall credit
received, it is a risky loan for the lender.problems in the past. The lender will only
The borrower may have to begin making choiceslend certain amounts based on the various
of  which  bill  to  pay.credit  scores.
* Difficult to verify: There are many cases* Lack of credit history: Lenders like to see
where a borrower may make plenty of money,a pattern of good payment history on the
but it is difficult to actually verify thecredit report. If the borrower has little or
money they bring in. Such is the case withno credit, the lender may want the borrower
many self-employed borrowers. To taketo establish a good payment history on other
advantage of tax laws, self-employedaccounts before taking the risk in issuing a
borrowers write off as much income by way ofmortgage  loan.
expenses as they can. This helps them avoid
overpaying taxes. It hurts them, however,* High balances compared to limits: This
when  trying  to qualify for a mortgage loan.typically shows that the borrower is
over-extended and living on credit. For
* Short employment history or gaps inobvious reasons, this is risky for the
employment: The lender wants to know withlender. Usually, it is only a matter of time
reasonable surety that the employment thebefore the borrower will start getting behind
borrower has now while qualifying for theon those payments, especially if they do not
loan will remain in place. Job hoppers orchange the lifestyle to live within their
borrowers who show periods of unemploymentmeans.
present more risk to the lender. What if the



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