BAD CREDIT SITUATION? COMPENSATING FACTORS MAY HELP YOU GET A MORTGAGE

Shopping for a mortgage when your credit isn't up to par can be a serious uphill battle. Lenders will be examining your credit to determine if you're the right fit for a mortgage. However, this isn't the end of the story. Working with a mortgage broker can help potential home buyers to learn ways to reduce the impact bad credit can have on the mortgage process.

D. Shane Whitteker is the owner at Principle Home Mortgage. He works with his clients to let them know the tips necessary to work through issues like marginal credit. One of those tips involves the concept of compensating factors. These can be the difference between getting a great mortgage, and getting turned down.

"Compensating factors can be the difference between qualifying for a mortgage or being turned down. Working with a mortgage broker as opposed to a bank will usually open up more options for someone that needs to take advantage of compensating factors," Whitteker says.

What are these important compensating factors? How will they help you to get a great mortgage? Basically, compensating factors are signs you can point to that show you're a good credit risk.

"A compensating factor is an aspect of a potential borrowers profile that may help that potential borrower qualify even with less than perfect credit," Whitteker says. "Examples include 12 months of rent checks, assets in reserve, income that can’t be used for DTI calculation but is earned by the borrower, residual income etc."

There are several examples of compensating factors. To help his clients get the best mortgage possible, Whitteker works with his clients to understand these factors, and how they can help people get the best mortgage for them.

Shock Calculation

By showing the bank that you're already paying for your housing on a regular basis, you can show you're less of a credit risk. This allows the bank to do something called a "payment shock calculation." Payment shock is simply the difference between what the borrower pays in rent and what the mortgage payment will be.

What's In Reserve?

Assets in reserve are assets left over after anticipated down payment and closing costs have been covered.

"Banks like to see 2 months or more in reserve, this indicates the potential borrower will have more ability to make their payments in times of financial hardship. Or be able to manage the payment until the house can sell, avoiding foreclosure," Whitteker says.

Non qualifying but earned income

Some income can be used when calculating the debt to income ratio, this is referred to as non-qualifying but earned income.

"If this income can be documented it can be used to show a more financially stable situation for the potential borrower. Residual income is money left over after the bills are paid. This can be used to increase the overall maximum debt ratio a potential borrower may qualify for," Whitteker says.

If you'd like to learn more about ways you can get a great mortgage, contact State College mortgage company Principle Home Mortgage today.