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Tip the Scales in Your Favor: To Ensure Loan Approval

Your lender will eventually sell the loan they advance to you – it’s pretty much a given. They will do everything they can to “check the boxes” prior to approving your loan in order to make sure that either Fannie Mae will buy your loan, or that FHA will insure against the loss of principal.

Let’s say you just squeaked by with a Debt-To-Income Ratio of 43% (maximum percentage allowed under a Qualified Mortgage). Or, maybe your credit score just barely meets the lender’s minimum 620 requirement. Perhaps your income reduced over last year, and you know that the average earnings to support your loan will be tight.

Tip the ScalesIf the decision is too close to call, your loan will be declined – that’s just the way it is today. So here are some discretionary “Compensating Factors” that can help to persuade the underwriter to stamp “approved” on your loan application:

  • Avoid “payment shock” – i.e., when your proposed monthly mortgage payments are more than the current rent you pay (make sure you can verify the last 12 cancelled rent checks)
  • Maintain 2-3 credit cards paid “as agreed”, at balances that are well below your total authorized amount (and don’t cancel your unused credit cards – the older they are the better)
  • Come up with more than the minimum down payment (and demonstrate how you have been able to comfortably save your money – evidencing that you are prudent with your finances)
  • Don’t change jobs too much – unless your income improves (especially with commission earnings)
Here’s the Point: Sometimes only one “Compensating Factor” will persuade the underwriter that you are a good credit risk – thereby improving your chances of getting loan approval.