Loan Advice

Better Than "A" Paper. What Compensating Factors Will Put Your Loan into the Best Loan Ranking?

If you have paid all of your mortgage payments and your other bills on time for several years, if your income has been steady for many years, if your overall debt is low compared to how much you earn and if you have a nest egg tucked away in an asset account, you have an excellent chance of getting the best rates on a home mortgage,as an A paper borrower.

Going into more detail:

• You will have made your monthly mortgage payments on time for a minimum of 2 years. You cannot have any outstanding collections or judgments.
• You must have been in the same line of work for a minimum of 2 years. It’s fine if you have changed jobs over the past 2 years, as long as it is in the same type of work.
• The debts you have each month must be less than 45 % of your total monthly income. This is called your debt to income or DTI ratio. This includes the mortgage payment, property taxes, homeowner’s insurance, car payments, all revolving credit card accounts, timeshares, etc. The property taxes are determined by taking the annual tax and dividing by 12. Same with the homeowner’s insurance. The credit card payment is the minimum payment due each month per card. Same with the car payment.
• You will be limited to borrowing 80% or less of your home’s value – 70% or less if you are interested in taking out cash.
• Your credit score will have to be a minimum of 680 points.
• You must have at least 2 months of your mortgage payment, property taxes and homeowner’s insurance saved in an asset account.
• The loan must be on your primary residence - not an investment property.

Although A Paper borrowers will receive the best rates in the marketplace, there are compensating factors that can put you in an even stronger position than A Paper. Let’s call it an A+ ranking. What circumstances make you an A+ borrower?

There are several factors that contribute to this:

• If the amount of money you need to borrow is less than 65% of the total value of your home you are an A+ borrower.
• If the amount of debt compared to the amount of income you earn each month is below 35% you are an A+ borrower.
• If you have at least 12 months or more of your principal, interest, taxes and homeowner’s insurance payment in an asset account you are an A+ borrower. (This is the least helpful of the A+ paper qualifications, but still valuable.)
• If your credit score is over 740 points you are an A+ paper borrower.

An A+ paper borrower can actually fall short on one of the A paper qualifications and still qualify for the best rates. For example, you might have missed a credit card payment and so your credit score is below 680 points, but if you borrow less than 65% of the value of your home, you can still qualify for the best interest rates in the marketplace.

Congratulations if you qualify as an A or A+ borrower. The rates for you are currently lower than what has been available for the past 3 or 4 years. Be ready to borrow at an interest rate under 6%.