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CHAPTER 2. Qualifying for a Mortgage Loan

Before making a mortgage loan, a lender spends from $500 to $1,000 just putting together a package of documents for its underwriters and loan committee. Based on these documents and on a set of nationally accepted standards, the lender decides whether to approve the loan application.

As many as half of all mortgage loan applicants fall in the gray area where loan approval decisions must be made. For example, first-time homebuyers often stretch their income to buy the largest home that they can afford. Before spending the $300 to $300 to apply for a mortgage, you should have a good idea whether you qualify for the loan amount that you want. If you get turned down, you may lose your application fee and, worse, you may lose the opportunity to buy the house you want.

Even if you are seeking only to refinance an existing mortgage, you could have trouble qualifying. Some of the nationally accepted qualification standards have changed in the past few years, and these changes may affect you. If your income has dropped since you got your last mortgage, you may have trouble refinancing, even with the same lender. If you have had any recent credit problems or if you have been delinquent on your current mortgage payments, this also may disqualify you.

If you have any doubts about your ability to qualify for the mortgage amount that you want, this chapter tells you what you can do to help qualify yourself.

This chapter explains in detail all of the factors that mortgage lenders look at to assess your creditworthiness. Today, most of this process is manual, but the industry is now using computers more than ever. Automated underwriting looks at the same factors as the manual process, but in a different way. For this reason, the last section in this chapter takes a look “under the hood” of these computer systems that are becoming so important.

 
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