Assessing Mortgage Applicants: Factors that Lenders Should Keep in Mind
Finding the ideal applicant for home loan approval is a long and arduous process. As a mortgage lender, you will have to carefully evaluate the borrower’s application as well as other supporting documents to determine if the applicant is low-risk and if they are capable of repaying the loan.
Let us discuss some of important factors that you can consider while reviewing your applicants for home loan
The most important thing that the lender needs to check thoroughly is the borrower’s income. This should not only include gross income, but also other incomes that can help determine their eligibility to repay the loan. This will help you assess the applicant’s income against their expenses and also evaluate their capability to make consistent monthly payments. You need to scrutinize self-employed applicants more closely, especially if they are making large purchases before or after their loan application. Substantial expenses can be a sign of unstable income and their subsequent failure to make monthly payments towards their home loan.
Needless to say, a borrower’s credit score plays a monumental role in determining how responsible they are towards their financial obligations. At the same time, a good credit score means they will be able to qualify for lower interest rates towards their mortgage. As a lender, you should urge the borrower to build their credibility if they have a low score. However, after the implementation of new mortgage rules with regards to civil judgments and liens, these applicants may sometimes benefit from overrated credit scores, making them a high default risk. A mortgage lender should always validate the public records to determine if the borrower has any judgments or liens that could artificially bump up their credit score, affecting their qualification metrics.
Assets credit score
The lender should also carefully analyze the buyer’s assets and collaterals that they can use in future if they are unable to make regular payments. Liquid assets in the form of savings account or a retirement fund is a good sign of availability of funds in case they fall behind. However, an applicant that does not have any liquid asset runs a high risk of defaulting. Since the property that the borrower is purchasing from the loan amount can work as a collateral in case of foreclosure, it is important to ensure that the value of this property is equivalent to the loan amount that the applicant has applied for. If the appraisal puts a lower value on the property, then the borrower may end up in a deficit.
These kind of applicants usually foreclose on a property and buy another one for investment purposes. Even though these buyers have the ability to repay the loan, it is still important to run a due diligence on their credit history. It is also a good practice to identify their previous lenders. This way you will be able to tell if the applicant is a genuine payer and if he has the means to repay the loan.
Mortgage lending business can be very complex, especially with the implementation of new rules. With increasing compliance costs, the lenders need to have tighter control over the mortgage processing support to keep their business profitable. Working with a reliable consultant can help achieve that objective. Expert Mortgage Assistance is a reputed name that offers turnkey mortgage outsourcing services to lenders and brokers. Their skilled professionals understand the mortgage industry better than anyone and offer customized solutions based on each clients’ needs.