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Qualifying For An Ohio Mortgage Loan

by Will Nelson

Published: January 16, 2007

Before making an Ohio mortgage loan, an Ohio lender spends from $500 to $800 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 Ohio mortgage loan applicants fall in the gray area where loan approval decisions must be made. For example, first-time homebuyers will stretch their income to buy the largest home that they can afford.

Before spending the $300 to $400 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 Ohio 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 Ohio 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 article tells you what you can do to help you qualify yourself.

National Standards

The majority of Ohio lenders today process and underwrite loans according to generally accepted national standards. These standards are dictated by Wall Street investors and government agencies who invest in mortgages or insure them against default. These investors are known as the secondary mortgage market. Knowing their standards will help you choose an Ohio mortgage and an Ohio lender.

Within the context of these standards, an Ohio lender has some leeway to be lenient and flexible, or strict and even picayune. If, after reading through this chapter, you have concerns about qualifying for the loan amount that you want, shop for a lender that is flexible.

What does an Ohio lender look at before saying "yes" (or "no")? The lender looks at the following: • Each applicant's monthly income and expenses • Each applicant's credit history • Property appraisal • Source of cash for down payment and settlement costs • Each applicant's employment history

What Are Your Monthly Income and Expenses?

The first question that Ohio lenders must ask is "Can you afford the monthly payments on this new mortgage?" To find the answer, they examine your current income and expenses plus the cost of the new mortgage, and they apply mathematical formulas to see if you can afford the payments. Government loans (FHA/VA) and conventional loans use different formulas.

Conventional Loans

For conventional loans, Ohio lenders make two calculations that compare your income and mortgage expenses. These calculations determine your housing ratio and debt ratio. Your housing ratio (also known as front ratio or top ratio) is your total monthly mortgage payment (your payment of principal, interest, taxes, and insurance, or PIT!) divided by your total monthly income. Your debt ratio (also known as total obligations ratio, back ratio, or bottom ratio) is the sum of your total monthly mortgage payment and other monthly debt payments divided by your total monthly income. If your ratios are too high, the lender may decide to deny your application. If you can demonstrate your ability to carry greater debts, the Ohio lender may allow you to exceed national standards, but usually not by very much. These ratios are very important.

What Is Your Credit History?

The second question that Ohio lenders must ask is “Have you repaid your past debts in a timely fashion?” To find this answer, the lender orders a mortgage credit report from a local credit bureau. A credit bureau collects information from retailers, banks, finance companies, mortgage lenders, and a variety of public sources on all consumers who use any type of credit.

Property Appraisal

The third question that a lender must ask is “How much is the property worth?” An appraisal is necessary to ensure that a lender does not lend more on a property than its value.

Employment History

The two largest causes of Ohio mortgage foreclosure are divorce and un-employment. An Ohio lender cannot anticipate divorce, but employment history is reviewed. The final question that a lender must ask is “Will your future income be stable enough to meet monthly mortgage payments?”

Ohio Mortgage Tip: Before applying for an Ohio loan, do everything that you can to make sure that your Ohio mortgage application will be approved.

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For more information on qualifying for an Ohio mortgage loan go to http://www.localmortgagecompanyohio.com

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