***  Rate your Loan  ***

 

Start with zero points . . . 

 

 

1.  Occupancy

Easy = Owner Occupied – Primary Residence

 

If you’re buying a rental Investment or Vacation Home, add 2 Points

 

Buying a vacation home or rental has different requirements to meet than a primary residence loan. How potential rental income is calculated, down payment, debt ratios and more, are different.

 

2.  Property Type

Easy = Single Family Residence in a Subdivision standard construction

 

Condo, add 1 Point

Duplex/Tri-Plex/Fourplex, add 2 Points

Country Home on over 1 acre, add 3 Points

Manufactured Home, add 3 Points

 

Condos you share ownership of the land/structures with others, and have HOAs that have to meet agency requirements. Plexs have complex calculations on potential rental income, different down payment minimums than a 1 unit SFR. Country homes have wells, septics, acreage, outbuildings, farther away comps for appraisals, and more that make these more difficult to get approved. Manufactured homes have pages of extra requirements to be met.

 

3.  Employer

Easy = 3+ Years at current employer

 

Less than 2 years at your current employer, add 1 Point

Less than 6 months at your current employer, add 2 Points

Self-Employed over 5 years, add 2 Points

Self-Employed, have at least 12 months of S.E. income on your tax returns, but  less than 24 months, add 4 Points

 

Loan approvals have to determine the stability of employment for Federal Ability to Pay requirements. Below two years at your current employment, the more steps that need to be done. Self Employed have further hoops to meet requirements for stability.

 

4.  Income

Easy = Salary Income

 

Hourly Income, add 1 Point

Overtime Income needed to qualify, add 2 Points

Commission or Bonus Income needed to qualify, add 2 Points

Income changed from Salary to ‘Base plus Commission’ within 2 years, add 3 Points

Rentals owned, add 3 Points

 

Loan approvals use “Qualifying” income for Federal Ability to Pay requirements. How Qualifying income is calculated from your income is specific in the requirements. A fixed income or Salary, is by definition stable at a set amount. Hourly is variable, so is more difficult to pin down what can be used for Qualifying. Commission/Bonus income can be sporadic and has to be averaged. Changes away from salary to commission can derail you, until time to show consistency has gone by. Rental income is pulled from tax returns using formulas that add back in some deductions.

 

5.  Credit Score

Easy = 800+

 

700-720, add 1 Point

640-699, add 2 Points

<639, add 3 Points

 

Credit scores impact a lot more in a loan than if you can be approved or not. The higher the score, the better the rate you may get, the less expensive mortgage insurance may be, debt ratios are allowed to go higher than if you have a low credit score. There are many interconnected variables that attach to your credit score. The lower the score, the more complex the loan gets.

 

6.  Funds to Close

Easy = All Funds to Close, in your Bank Account for months, or coming from sale of pending real estate

 

Part of Funds to Close just recently added to Bank Account, add 1 Point

Gift Funds, add 1 point

2nd Mortgage from seller or lender are part of Funds to Close, add 3 Points

 

All Funds to Close have to be verified meeting Federal requirements. The Patriot Act has to be met. Funds in a bank account for months, or proceeds coming from the sale of a current home, are easier to verify than gifts. Gifts have specific forms that need to be signed by donors, and requirements to meet for the transfer of funds, in order for those gifts funds to be used. Any 2nd used as part of the down payment are highly complex to meet requirements.

 

7.  Down Payment

Easy = 25%+ Down or more

 

5% Down, add 1 Point

3% Down, add 2 Points

 

That a bigger down payment makes the loan easier is common sense. Small down payments jump through more hoops to get approved.

 

8.  Loan Type

Easy = Fixed Rate Conventional Loan

 

FHA, add 2 Points

VA, add 2 Points

Jumbo, add 2 Points

ARM, add 3 Points

Construction Custom, add 5 Points

 

Conventional loans usually have the easiest requirements, and a fixed rate with a fixed payment the easiest calculations in qualifying. FHA loans are easier on many guidelines than Conventional, but they also have different income calculations and requirements to use employment income. Credit scores can change approvals greatly with FHA. VA have strong protections for veterans and unique underwriting requirements than help as well as hurt as compared to conventional loans.  ARMs have tighter debt ratios than fixed rates, and many times qualify at a higher rate than the start rate. Many borrowers qualify for a higher loan amount on a fixed rate, than an ARM starting at a lower rate, which can be counter intuitive but makes sense when you realize the ARM rate adjusts. Custom Construction loans have LOADS of extra requirements, higher rates, different calculations for qualifying, than conventional loans.