Qualifying for a Mortgage

Like most other processes, the remortgage or mortgage process for home loans requires certain criteria. The mortgage lenders generally have several requirements or variables that they use to measure and validate the applicants. Most lenders have three major factors. These are (1) your credit score, (2) the down payment and (3) your debt ratio (income versus debt).

The first step in mortgage refinance is pre-approval, also called pre-qualification. This is where the applicant goes through a type of pre-screening to determine if there is any credibility before the process begins. Once this process is complete the applicants major factors (as mentioned above) will be evaluated along with numerous other variables. If all is satisfactory a “clear to close” will be given. However, keep in mind that the lending institution can evaluate your credit history the day of the close to make sure no bad rating has been incurred since the pre-approval stage.

Your credit score may be one of the most important factors in applying for a mortgage or remortgage. Credit scores run from about 300 to 800 or more. The lower you score the higher your risk, the higher the interest rates and the higher the down payment you will need to make. Conventional loans with standard rates will generally be given to individuals with scores ranging from about 600 – 700. Individuals with scores over 700 generally have access to some of the lowest rates as a result of their creditworthiness. If your credit score is below about 600 your going to be asked to provide a substantial down payment and you will be charged a higher percentage remortgage rate.  This is particularly so with the bad credit remortgage folks.

Your credit history evaluation will involve a number of factors including mortgage and/or rental history, car payments and other installations, credit card history with respect to late payments, county or court claims against you, prior foreclosure or bankruptcy, other collections or judgments, liens, student loans and any repossession history. If you are divorced some institutions may insist on seeing your divorce decree. The latter serves to define who the buyer is and who will be making the payments. Finally, lending institutions will inquire as to the depth of your credit history, the amount of debt, how long you have carried the depth and other compensating factors.

When checking your credit history the lenders will forward the information to credit bureau. The credit bureau will conduct a type of due diligence on your information. Hence, it is important to always provide accurate data to these companies as they house your credit profile. A report from the credit bureau will then be made to the lending institution to assess your creditworthiness. Part of this evaluation includes, of course, your ability to repay the debt. The latter is assessed by evaluating your past history in making monthly payments to your creditors.

You have the right, however, to dispute any claim by the credit bureau regarding your credit history. It is then up to the credit bureau to resolve the claim. Most claims are resolved in two weeks or less.

If you would like to know additional information regarding the criteria associated with mortgage qualification check out the video shown below or watch it here on YouTube.

The video discusses and provides information regarding the credit score/history, which was discussed above in this article but then adds information regarding the down payment and debt-to-income ratio.  In addition, several tips and resources are suggested.  As always, it is a recommended practice to secure a good remortgage broker.

Categories: Remortgage  |  Tags: Conventional loans, credit card history, credit history, credit score, debt ratio, mortgage, Remortgage  |  117 Comments »

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