UNDERSTANDING THE UNDERWRITING PROCESS
“At First Advantage Mortgage,” underwriting is the process through which mortgage lenders evaluate your financial history—your income, assets, and debt—to determine if you qualify for a loan. For conventional loans supported by a GSE (Government Sponsored Enterprise), many aspects of underwriting are automated.
During this process, the underwriter checks various factors related to your finances, including:
- Verifying Employment and Income: Confirming you can afford your mortgage based on your income.
- Determining Debt-to-Income Ratio (DTI): Assessing the ratio between your debt/spending and income.
- Verifying Savings: Confirm that you have the money for your down payment.
- Evaluating Assets: Checking if you have assets that can be used in case of mortgage default.
- Ordering an Appraisal: Confirming your loan aligns with the home’s value.
- Considering Credit History: This is crucial; let’s explore how it affects your mortgage qualification.
HOW CREDIT HISTORY AFFECTS MORTGAGE QUALIFICATION
While a good credit score (at least 670) is crucial for mortgage qualification, credit history is equally important. It includes your accounts, balances, and payment history. A robust credit history, based on active accounts over time, strengthens your credit score.
Some applicants lack a traditional credit history, making it challenging to prove financial reliability, especially those who paid cash for major purchases.
Rental Payments & Credit History: Despite assumptions, rental agreements and on-time payments don’t significantly impact credit history. Less than 5% of rent payments are usually included on credit reports, making it challenging for those with limited credit history.
A NEW UNDERWRITING INNOVATION INCLUDES RENTAL PAYMENTS
Traditionally, underwriting didn’t consider rental payments. However, a GSE’s innovation now includes rental payments in the process. The automated system analyzes bank statements to identify recurring rent payments, providing a more inclusive financial picture for applicants.
Impact on Missed Rental Payments: The innovation aims to positively impact eligibility. Missed or inconsistent rental payments won’t count against applicants; only consistent, on-time payments are considered.
HOW DOES THIS INNOVATION IMPACT MORTGAGE APPLICATIONS
Research indicates that excluding rental history from credit history affects many mortgage applications, particularly for first-time homebuyers. In one study, 17% of applicants not approved for a mortgage could have been eligible if rental history was considered.
This innovation aims to address historical inequities, especially along racial lines, by incorporating on-time rental payments. It expands mortgage eligibility to a broader community.
QUALIFYING FOR A MORTGAGE WITH FIRST ADVANTAGE MORTGAGE
“At First Advantage Mortgage,” we embrace this innovation, aligning with values that emphasize simple and accessible mortgage qualification. Whether you have great or no credit, First Advantage Mortgage offers personalized guidance through a Mortgage Coach. This innovation opens doors for ownership to those with a strong rental payment history but limited traditional credit.
Contact First Advantage Mortgage online or call the nearest office for assistance in qualifying for a mortgage.
Disclaimers: Government-Sponsored Enterprise Disclaimer: This marketing content is not approved, reviewed, sponsored, or endorsed by any government department or agency.
