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Archive for the ‘Loan Qualification’ Category

We have received this question often and the real simple answer is Yes….and No…(mostly no.)

Is that clear enough?  When banks lend money on a home they do so after the borrower(s) prove(s) (without a shadow of doubt these days) that they are willing, able and willing to make the payments for that loan.  Lenders will ask for lots of documents to find the ability to pay, such as:

  • Tax returns
  • Bank statements
  • Pay stubs
  • Investment account statements
They also want to know the likelihood of that loan being paid back which is found by the credit report.  A credit score is essentially the track record someone has to repay loan obligations.  The ability to pay also takes into account the amount of the loan verse the amount of income that one makes.  The standard (there are exceptions) is that a bank will want the mortgage payment to be about 25-33% of someone’s monthly gross income.  Gross income is defined by the total amount of income before taxes and withholdingare taken out.  Banks also look at the total amount of structured debt (structured debt is defined by any payments that have a regularly scheduled payment and these will typically show up on your credit report) and they’d like all structured debt (including the mortgage payment) to be less than around 45% of the gross income.

After doing their due diligence and deciding whether or not someone is worthy of a loan they will issue that loan. That loan is based on the financial picture at that time and of the people that went through that process.  When a loan is in two (or more) people’s name the bank is counting on those people to fulfill their obligation and repay the loan according to the terms set forth.  When a situation changes and those that are on the loan no longer want to be connected to each other by way of that property and wish to be removed from the loan a problem occurs.  Since the bank is counting on all parties who got the loan to repay they have no interest in releasing anyone from liability since it’s not in their best interest.  If you find yourself on a loan that you no longer wish to be party to you have a couple options:
  • You can sell the property: one way to get off of a loan is to get rid of that loan.
  • You can refinance the property: another way is to have the property refinanced with either one of the original members or one of the original members plus another thus removing the 2nd party.
  • You can try to fake your death – I cannot condone this although I believe it worked for D.B. Cooper (although I think even he was seen recently so it may not work forever).
It’s rare to have only two solutions to a problem although that is the case here.  Banks just aren’t interested in releasing liabilities when they are in a better position and more likely to collect from two people than from one person.  As with nearly everything there are some exceptions – Have you seen other situation where a bank has flexed their rules to allow people out of a mortgage obligation without selling or refinancing?
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I have met some great people during my career as a broker.  Great people

Improve your credit score

who just simply want to realize the American dream of home ownership.  Often times we make those dreams a reality.  Often times we make those dreams reality in a timely manner.  Other times it takes time.

Why?  The powers that be have installed a system whereby in order for someone to qualify to get a loan to buy a home they have to be what they would call ‘credit worthy’.  The banks and lenders need to feel comfortable in the borrower’s ability to repay whatever loan they are given.  How they do that is primarily through a credit score. 

Credit score calculations are put together by the same people who have developed the BCS standings for college football championships seemingly.  No one fully grasps how they do it or why they weigh more on particular aspects of a persons financial snapshot over others, but that’s the reality. 

Essentially the credit score is put together by three bureaus who record financial information in a database and plug that information into their formulas to come up with a score.  Those bureaus are Trans Union, Equifax and Experian.  Lenders then use that information to determine if a person is ‘credit worthy’ or has a strong likelihood of repaying a loan. 

What if that score is too low?  Lenders want to see (and this is subject to the lending environment at any given time – aka ‘Subject to Change’) scores at least 620 and higher.  The lower the score the higher the rate can be.  The lower the score the higher the down payment potentially can be, too.  If that score is on the low side there are things that can be done to improve that score.  Here are a couple links to improving your credit score. 

The most complete resource for all things credit score is www.myfico.com 

Here’s an article from Money Magazine on 7 ways to improve your credit score.

Here’s to a healthy credit score!

Alan Strange, and The Strange Team, has a comprehensive website focusing on Denver Real Estate. Buyers can search all of the active Colorado MLS listings for homes Fast, Free and Easy.

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