Mortgage Underwriting Hurdles - What are they?
Q ualifying for a mortgage is generally a straight forward exercise. From a borrowers point of view, there are 3 "hurdles" that you must clear in order to be qualified for a purchase or refinance. Sometimes there are many others, but if you don't clear these basic three, you will have a difficult time with qualifying.
1) Credit Score:
A lender will pull a credit report from all three bureaus and take the middle score as your representative score. If there are multiple borrowers, underwriters will use the LOWER middle score of the applicants.
If your score is over 660, you are in the qualifying range. As you get 720+, you are in very good shape! Many loans exists for borrowers with lower FICO scores.
2) Debt to Income Ratio:
Debt: On your credit report is a list of monthly debt obligations (credit cards, car payments, etc…). In addition to your housing expense (principal, interest, taxes (property), insurance). Those are totaled as your monthly debts.
Income: Your documented monthly income is totaled from your pay stubs, W-2’s and tax returns. This is your monthly income.
Monthly Debt/Monthly Income = Debt to Income Ratio.
Loan types can vary from between 43-50% Debt-to-Income requirement.
Translate: If you make 1,000/month in income. Your total debts cannot exceed $430 (43%).
3) Loan To Value Ratio:
Your home is appraised. Most lenders will not allow you to borrow more than 80% of that value. There are some programs and 2nd loans that will allow you to borrow more. But at a basic level 80% or less is the mark the underwriters are looking for.
If you can clear each of these “hurdles”, you are likely to be approved for the loan for which you have applied.