Lending circa 2012 is very much akin to our financing of 1991. Yes, we can still do stated income loans. However, lending for small business owners was better in ’91 than it is today. For the rest of us, the underwriting systems are as straight forward as getting your car smog tested. Here we go. The information is nominal in nature as exceptions to each test exist.
Test # 1) Income. Standard debt to income ratios are calculated. California normal is a maximum of 45 % of your ‘gross’ income is available for your home and all the payments listed on your credit report.
Test #2) Credit. The better your credit, the better the loan interest rates and loan points are. A 520 credit score will still pass for some types of loans. Nominal credit score is currently 640, with a minimum of 3 trade lines open a minimum of 24 months.
Test # 3) Assets. Yes, money does make the world go around. We look to bank accounts, stock and retirement accounts. More is better, however, little does still work in many instances.
Test # 4) Property. Surprise, the house needs to be standing and livable. Condition, appraisal valuation comparisons do count.
When you pass all 4 of the tests, you too become another member of the 1 T club. This is the club of expecting 1 Trillion dollars of home loans to be written in 2011. Like a smog test, if one of the test fails, you do fail to get a loan. And, like a smog test, when you fail go and fix the failure point and you are back getting tested again.
Loans are not easy in our current environment. If they were, we would be back in 2006 getting ready for a serious haircut. In other words, the more difficult, the better the loan and real estate deal you have in your hand.