Qualifying for a Mortgage Loan [top]

Mortgage underwriters (the folks that ultimately approve your loan request) use several methods to qualify a borrower for a mortgage loan. The guidelines are dictated by the type of loan for which you are applying and the risk that the lender is assuming on that particular loan program. The basic principles used for qualifying are; the borrower's ability to repay the mortgage (Income), the amount to be borrowed versus the value of the security (Equity), and the borrower's repayment history (Credit). Demonstrated strengths in any one of those basic principles may outweigh weakness in others.

Income [top]

Mortgage lenders look at the amount and stability of your income and the likelihood that it will continue at this level. The borrowers income helps them determine how much mortgage you can afford. Lenders will consider income from several sources when qualifying a borrower.

• Self- employment income
• Commission and tips
• Social security, disability or pension income
• Rental income
• Child support income

Credit issues [top]

Bankruptcy, judgments, late payments and other credit issues may affect your ability to qualify for a home mortgage.

Bankruptcy [top]

There are two kinds of bankruptcy: Chapter 7 and Chapter 13.

You can still obtain a mortgage with a Chapter 7 bankruptcy, but there are certain limitations. Conforming loans require 24 to 48 months since the bankruptcy was discharged before you will qualify for a mortgage. FHA and VA loans only require 24 months. Non-conforming, sub-prime loans will carry an interest rate of one and a half times the current FHA and conventional rates. You must furnish your lender with copies of your bankruptcy Discharge notice and the court’s list of all creditors included in your bankruptcy.

With a Chapter 13 bankruptcy, you are required to make monthly payments to a trustee who then distributes it to your creditors. FHA may qualify you after 18 months of on-time payments to the trustee, but you will need the bankruptcy court’s approval to incur the new debt.

Judgments, Liens and Collections [top]

If you owe someone money and the court has ruled in their favor, the person owed is granted a judgment against you. Judgments become matters of public record and are reported to the credit bureaus. They are serious and must be paid off quickly. Similarly, if you owe back taxes to city, state or federal governments, they can record a tax lien against you. You may still qualify for a mortgage if you have a written agreement with the government for monthly payments on the lien. If you owe someone money and they turn your account over to a collection agency, this fact will also appear on your credit report. Most lenders may require you pay this amount can before you can qualify for a mortgage loan.

Late Payments [top]

Anytime you are 30 or more days late with a payment, the creditor reports that fact to the credit bureaus. As your delinquency increases, so do your ratings. The higher the rating is, the lower your credit standing.

No Credit History [top]

If you have not had credit cards, installment loans or rent payments, you may be able to show a good credit history by showing a good payment record for car insurance or utility bills. Without at least this credit history, you will not qualify for an FHA loan or most conventional loans.