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What
Lenders are Looking for in a
Loan Application
Your credit report is one
of the main considerations
for a home equity loan. It
shows the lender how much
you owe, and if you have any
bankruptcies, judgments,
repossessions or delinquent
accounts.
Lenders can allow for
compensating factors to
offset derogatory credit,
such as the loan to value,
or job stability. A good
credit history allows the
lender to offer a higher
loan to value, a higher loan
amount, and a better rate. A
low credit score means the
lender may offset the risk
by reducing the maximum loan
to value, and raising the
interest rate.
Job stability is
determined by how long you
have been with your current
employer, and how long you
have been in the same type
of work. Changing jobs
frequently, especially in
different fields of
employment, is considered a
higher risk for getting a
home equity loan.
Your income is factored
into a debt ratio. Salary or
wages are figured on a
monthly basis, while
overtime or bonuses will be
averaged for the last year
or two. For self-employed
borrowers, the net income is
averaged for the last two
years. Other income may be
included, depending the
history of the income and
how long it will continue.
For example, a part-time job
needs a two year history.
The debt ratio has two
figures, the housing expense
divided by the total income,
and the total of all debts
divided by the total income.
If credit cards or other
loans are going to be paid
off with the new home equity
loan, those payments will
not be included in the
ratio.
The loan to value also has
an influence. The more
equity you have, the more
flexible lenders will be.
With sufficient equity and
very good credit, some
lenders will not even verify
your income. |
