Financial Resource Center

Housing


How to Become Mortgageable

by Jeremiah Tucker / June 13th, 2016


For anyone who's dreamed of owning a home, the words "your loan is denied" can be a blow. How easy to give up, especially if you already have some debt and live on a modest income. But patience and hard work can make home ownership a reality.

How to qualify for a mortgage

The best strategy is to meet with a home loan specialist and learn about the home loan process before you start looking for a house.

Lenders size up loan applicants on whether or not they are good credit risks. In other words, will an applicant fulfill a debt obligation or fall behind on payments and eventually default?

Factors that can derail a mortgage application include a debt-to-income ratio above 35%, less than two years of employment history, nonpayment of bills, and application to purchase property that's depreciating in value.

The three Cs of creditworthiness

These "Three C's" are the traditional acid test for creditworthiness:

Capacity: Do you have the income to repay the debt? Lenders review employment history, gross monthly income, housing expenses, and outstanding debt.

Character: How much debt do you already owe, do you pay your bills on time, and are you able to live within your means? Lenders also want proof of stability--how long you've lived at the same address and held your present job.

Collateral: Is the property structurally sound or a sagging shack that'll undermine your ability to repay the mortgage? A licensed appraiser helps make this determination.

Credit scoring is a way to evaluate your credit history based on experience with other borrowers.

An objective model for credit risk

Most lenders use credit scoring, an objective model that predicts credit risk. In essence, scoring uses credit report data to evaluate your credit history based on experience with other borrowers.

Computerized credit scoring speeds up the loan underwriting process and eliminates human bias. But it doesn't have the human ability to detect personal issues that can affect someone's credit history.

Credit unions look at personal factors

Computerized credit scoring can't detect everything that can affect your credit history.

The staff at your credit union sometimes consider other factors in the case of low-scoring applications. They also may find situations that override a poor score.

The credit union wants to find reasons to say yes, not to say no. Meeting with someone at your credit union can help you start learning how you can become a homeowner.

Credit unions look at personal factors

Computerized credit scoring can't detect everything that affects your credit history.

The staff at your credit union sometimes consider other factors in the case of low-scoring applications. They also may find situations that override a poor score.

The credit union wants to find reasons to say yes, not to say no. Meeting with someone at your credit union can help you start learning how you can become a homeowner.

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