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GetLoans.com Seminars > Underwriting Rules

LOAN LIMITS:

“Conforming” loan limits:

  • $417,000 – 1 unit (5% down payment minimum)
  • $533,850 – 2 unit (5-10%% down payment minimum)
  • $645,300 – 3 unit (20% down payment minimum)
  • $801,950 – 4 unit (20% down payment minimum)

Conventional “Conforming-Jumbo” loan limits (these are for “high cost” areas only):

  • $417,001 to $729,750 – 1 unit (10% down payment minimum)
  • $533,851 to $934,200 – 2 unit (10% down payment minimum)
  • $645,301 to $1,129,250 – 3 unit (20% down payment minimum)
  • $801,951 to $1,403,400 – 4 unit (20% down payment minimum)

“Jumbo” loan limits:

Any loan amount above the limits noted above in the Conventional “Conforming-Jumbo” loan limits is considered a Jumbo loan. (20%-25% down payment minimum)

ADDITIONAL DOWN PAYMENTS NOTES:

  • 3.5% down is the minimum down payment for an FHA loan.
  • 5% down usually only on a single family or a condo, must be a Conforming, owner occupied loan.
  • 10% down needed on a Conforming-Jumbo, owner occupied loan or a 2 unit owner occupied property.
  • 20% down needed on 3 and 4 unit owner occupied property.
  • 20-25% down is down payment range for an investment property.

INCOME:

  1. Salaried borrowers use their current gross income.
  2. Commissioned borrowers use a 2 year average of “net income.”
  3. Self-employed borrowers use a 2 year average of “net income.”
  4. Overtime or bonus income you should use a 2 year average.

DEBTS:

You need to count all monthly debts, like installment and revolving debts. For ex. Car loans, school loans, credit cards with balances (use minimum monthly payments), personal loans, signature loans, 401k loans, car leases, child support/alimony, etc. You would not count existing rent, car or life insurance, cell phone bills, or utilities.

ASSETS:

  1. The borrower may use all sorts of assets. The most common are: checking & savings accounts, money market accounts, CD’s, and stocks.
  2. Gift money: The borrower must provide a gift letter, evidence that the donor has the ability to give the gift and evidence that the borrower has received the gift.

    When a borrower has a gift, they still must have 5% of the sale price of their own cash, everything else above the 5% figure may be a gift. However, if you have a 20% down payment, and all of that is from a gift, then the above 5% rule is waived.
  3. An equity loan on a current property is acceptable, or a 401k loan, Thrift Plan loan, pension plan or a loan against stocks. This can be counted as an asset to be used towards down payment or closing costs, however, the resulting monthly payment from the loan must be counted in the debt ratio.

CO- SIGNER RULES:

If there is a co-signer, it must be an immediate family member (mother, father, sibling). However, on Conventional loans, co-signers are no longer much help. They have rewritten the rules, and now the main buyer who will occupy the home has to carry the bulk of the mortgage on their own, regardless of how strong the co-signer is. A co-signer “may” be some help on some Conventional loans as long as the loan is backed by Freddie Mac versus Fannie Mae, but nowhere near as many lenders use Freddie Mac as they do Fannie Mae. However, a co-signer is allowed and can be a great help in qualifying, on an FHA loan.

CREDIT SCORES:

Credit scores have changed the way lenders look at loans. The average credit score is 680 to 720. A score below 680 on a Conventional loan will result in a higher interest rate, and a score below 640 may end up in a loan rejection. Anything above 720 is good, above 780 is excellent. On an FHA loan the credit score rules are more liberal, they do not charge higher or lower rates based on your score. And you can go as low as a 620 score and still get an FHA loan.%

A credit score is predictive value for telling the lender how likely you are to repay a loan or to make payments on time. The credit score is based on a model derived from analysis of past credit history of thousands of people similar to yours, the credit score tries to estimate your future behavior of loan repayment.

The FIVE Things That Are Important In Credit Scores Are:

35 % is based on payment history. Have you paid past credit accounts on time? Late payments are not an automatic “score-killer.” An overall good credit picture can outweigh one or two instances of some recent late credit card payments. By the same token, having no late payments in your credit report doesn’t mean you will get a “perfect score.” This part of the score takes into account late payments on all types of accounts, plus bankruptcies, judgments, liens, and collection accounts. These are considered quite serious, although older items will count less than more recent ones.

Details on missed payments – specifically, how late they were, how much was owed, how recently they occurred and how many there are. A 30-day late payment is not as risky as a 90-day late payment, in and of itself. But a 30-day late payment made just a month ago will count more than a 90-day late payment from five years ago.

30 % is based on amounts owed. In addition to the overall amount you owe, the score considers the amount you owe on specific types of accounts, such as credit cards and installment loans. In some cases, having a very small balance without missing a payment shows that you have managed credit responsibly, and may be slightly better than no balance at all. On the other hand, closing unused credit accounts that show zero balances and that are in good standing will not generally raise your score.

How many accounts have balances? A large number of account balances can indicate a higher risk of over-extension. How much of the total credit line is being used on credit cards and other “revolving credit” accounts is important. Someone closer to “maxing out” on many credit cards may have trouble making payments in the future. How much of an installment loan account is still owed, is important. For example, if you borrowed $20,000 to buy a car and you have paid back $4,000, you owe (with interest) more than 80% of the original loan. Paying down installment loans is a good sign that you are able and willing to manage and repay debt.

15 % is based on length of credit history.
In general, a longer credit history will increase your score. However, even people with short credit histories may get high scores, depending on how the rest of the credit report looks.

This part of the score considers both the age of your oldest account and an average age of all your accounts. How long specific credit accounts have been established. How long it has been since you used certain accounts.

10 % is based on any the number of new credit accounts. Research shows that opening several credit accounts in a short period of time does represent greater risk – especially for people who do not have a long-established credit history. This part of the score takes into account: How many recent requests for credit you have made, as indicated by inquiries to the credit reporting agencies. Note that if you order your credit report from a credit reporting agency – such as to check it for accuracy, which is a good idea – the score does not count this. This is considered a “consumer-initiated inquiry,” not an indication that you are seeking new credit. Also, the score does not count when a lender requests your credit report in order to get you a “pre-approved” credit offer.

10 % is based on types of accounts. What kinds of credit accounts you have, and how many of each. Credit account types include: credit cards, retail accounts, installment loans, finance company accounts and mortgage loans. In general, the effect of how many accounts you have and their mix would vary with your income and other factors. It is not recommended that you open new accounts just to “diversify” your credit profile.

AUTOMATED UNDERWRITING

One of the major changes that have occurred in the mortgage lending industry during the past few years is the utilization of computers to underwrite mortgage loans. Hence the name – automated underwriting. The benefits are significant – faster loan approvals, slightly reduced closing costs, less documentation requirements, and the approval of loan applications that in the past were denied.

AU employs “artificial intelligence” with a predictive model that assigns a quantitative risk factor to individual mortgage applications. The approval issued by these systems are a binding commitment on the part of Fannie Mae and Freddie Mac, provided that the information that is input into their systems is accurate and documented.