Credit of Borrower

Institutional lenders want monthly payments like clockwork. They don't want problems in collections. Least of all, they don't want to end up owning the security for their loans. If the borrower has had credit problems, the lender will be reluctant to make a loan, regardless of the value of the property and the borrower's ability to make payments.

Some of the problems that would likely result in the refusal to make a loan include:

1. Judgments against the borrower;
2. A history of legal actions and judgments involving collections of debts;
3. Present loans that are delinquent in payments;
4. A history of late payments;
5. Debts which have been turned over to collection agencies;
6. A recent bankruptcy; and
7. A pattern of debt and bankruptcy

Borrower's Capacity

An institutional lender will not approve a loan for a borrower who fails to satisfy the lender's requirements as to capacity to make the loan payments. Capacity is generally measured by two ratios both of which must be satisfied for the lender to make the loan.

Although they are not cast in stone and will vary slightly as to type of loan, ratios are still the primary criteria used by institutional lenders in determining borrower capacity. However, there are two other mathematical methods of scoring to determine if a loan should be funded. These scores have been shown to accurately reflect risk.

Not everyone who shows low risk will necessarily honor their obligations and many borrowers who show high risk will honor their obligations. These scores are based upon a number of factors and lenders using them use only one, not both, scoring methods.

o FICO Bureau Scores. These scores range from 400 to 900 with the 400 score indicating likely borrower default and a 900 score indicating just a single chance of borrower default.
o Bankruptcy Score. This score ranges from 0 to 1300. With a higher number indicating a greater risk of default.

Questions about Capacity

Some lenders stay away from borrowers who have just recently achieved higher earnings, especially if the earnings are related to a new job.

They are concerned as to the likelihood of continuance of such income. Another problem is persons paid by commissions. Several months of high earnings are not likely to mean much to a lender when prior months were of much lower income.

Self-employed individuals pose another problem. Often tax returns fail to reflect actual net. In many cases a self-employed person is able to take deductions for tax purposes which distort the true income picture. Whether honest deductions or tax fraud, self-employed persons often have great difficulty in obtaining real estate financing through institutional lenders.

Self-employed tax returns often fail to reflect actual net. Private lenders are more likely to understand that tax returns are not always indicative of what a person is able to pay.

The top mortgage brokers will help you in your search for the perfect home. More information on home mortgage can be found on various mortgage sites online.

Tagged with:

Filed under: Foreclosure San Diego

Like this post? Subscribe to my RSS feed and get loads more!