Underwriting guidelines will vary from lender to lender but there are many items that underwriters from any lender will look for. One underwriting guideline that just about every lender will consider when underwriting a loan will be what is the borrowers credit score. Each lender has their own different policies on what credit score is required for what program, but pretty much all lenders do have some type of guidelines for credit scores in order to approve borrowers. Generally speaking the way most lenders will look at credit scores is the lower the score, the higher the risk. Therefore, it is important to work to try and have the best credit score you possibly can to help obtain the best mortgage loan terms that you can. Even if you do not have a great credit score, chances are that you can get a mortgage so do not get discouraged if your credit has slipped a little bit.

Another common underwriting guideline is "reserves". Reserves are required for certain loan types with some lenders, and with other lenders they are not required at all. "Reserves", is a term used to describe a specified number of months worth of PITI, Principal, Interest, Property Taxes and Homeowners Insurance, payments put away in the form of liquid assets.

One example of reserves could be that for a stated income loan the lender's underwriting guidelines require 2 months worth of reserves for the borrower. Well if the new mortgage payment proposed is going to be $1,000 PITI (this includes your taxes and insurance) then this would mean that per the underwriting guidelines you would need to have at least a minimum of $2,000 saved up somewhere. This money can not be money that you have underneath your mattress and it can not be the value of personal property owned. This money would have to be in a savings account, checking account, money market account, stocks, bonds, mutual funds, 401k account, IRA account, or some other similar type of account with liquid cash value. This money will usually need to be sourced and seasoned for 60+ days. To be sourced just means that we will need to show proof that this money is indeed in one of "YOUR" accounts. To be seasoned means it must have been in your account for at least the past 60+ days. You can not just have your mother give you $2,000 to put in your account and provide the bank with a statement showing you have the money in your account. You need to show that it has been there for at least the last 60+ days. Therefore, if you are considering buying a home it is a wise idea that you contact a mortgage broker very early in the process so you can figure out if you are going to need to verify any reserves for the loan program that you choose and if reserves are required then make sure you have or get the appropriate amount of money into your account early enough so that you can document it being there for 60 days or more.

One of the underwriting guidelines which is receiving an increasing amount of scrutiny is LTV, short for Loan To Value. This can be calculated by dividing the Amount or your Mortgage by the Value of your Property. For example, if you were refinancing a $250,000 mortgage on a house which recently appraised for $500,000, you would divide 250,000 by 500,000 and get 0.5, or 50% LTV (Loan to Value).

Generally speaking, higher Loan to Value ratios mean more risk to the lender, and therefore higher rates or stricter credit score, reserve assets and income documentation requirements. A lower LTV will also generally correspond to lower rates and easier qualification.

Your debt-to-income ratio is another guideline that underwriter's will scrutinize. If you have co-signed for a loan for someone and are not making the payment, this debt may still be counted towards your debt ratio. If you can provide documentation a debt is being paid being someone else for over 6 months, you may be able to lower your debt-to-income ratio and improve your loan qualification status.

 

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