The Home Mortgage Help Source
By Ron Kerwood


Weekly Update


The Process




VA Loans

(Rough Credit)





Qualifying for a mortgage loan used to be a simple issue.  28/36 qualifying ratios.  28% of your gross income for the housing costs and 36% of your gross income for all debts.  (Click here to see how this old method would have qualified you.) You fit the ratios or you didn't.  Plain & simple.  This tried and true method in the lending industry left out a lot of well qualified people however.  How could that be, you ask? 

First of all, everyone's spending habits aren't the same.  Someone with a limited income, a good coupon clipping ability and a little common sense can really stretch a dollar.  Cultural attitudes may stress saving instead of spending on material goods.  All of this added up to a large segment of the population being left in the dark. 

Well, the Dark Ages were pushed aside by credit scoring.  Credit Scoring is a method whereby the credit repository (Transunion, Equifax & Experian) rates an individual's credit profile based on a number of categories.  Yes of course they look quite closely at how well one pays their bills, but many other factors come into play.  Areas I have observed over the years are things like;

  • How much credit you have.  Having little or no credit is bad in this area.  There is little to base a rating on.  Having too much credit hurts in other ways, see below.

  • Having credit but not using it.  As noted above, without payment patterns it is difficult to apply a score since there may not be enough history.

  • Types of credit.  An individual with a lot of revolving debts seems to get hit harder on scoring.  Not as much of a problem if they have a lot of installment loans.  Auto, mortgage or personal loans.  It seems that the consideration here is someone who takes out credit set to pay back in a specific period of time is more organized in their finances.

  • Usage of credit.  As noted above, not using credit makes for a lower score since there isn't much history to base a score on.  But overuse of credit is damaging also.  One particular area seems to be maintaining high balances on revolving credit. In other words, let's say you have a credit card with a limit of $4,000.00 and the balance is always up around $3,800 or so.  That hurts!  The scoring formulas seem to read that as if you can't get the balance down and therefore you're a risk for new credit because more credit will only make it worse.  Now maybe you're using the card alot and paying it off every month to build up airline miles or points for buying a car.  Doesn't matter.  The systems cannot read that into it.  They just see consistent high balance versus limit.

  • Number of new accounts.  Where people get hurt here is when they shift balances from one credit source to open another to save on interest costs.  Again, the systems cannot know that's why you're doing this.  The systems see another new account. This lowers your credit score for a few months and the old account probably won't show up as paid off for a couple of months.  In addition, if you don't write to the creditor of the old account to close the account, it'll remain open and it looks like you have even more credit even though you may have cut up the card and swore under a full moon to never use it again.

At this point in the evolution of mortgage lending, a Borrower with good credit scores and maybe a few bucks in reserve after closing, can expect to be approved with Ratios as high as the mid 40s.  A bigger down payment might stretch it even further.

Like to know for sure how much of a mortgage you Qualify for?  Contact me and I'll walk you through the steps and get you on the road to homeownership!!!