The Mighty Compensating Factors
Always try to find compensating factors.
There are many people who will not even try to apply for a mortgage loan because they "know" they do not qualify and there would be no way any body would lend money to them. They may have been late once or twice on a payment, or their job is not "seasoned" or they do not have the money for both a down payment and closing costs.
Under normal Market conditiions this assumption may be completely false because of a compensating factor or more.
Good Credit can compensate for a lack of funds.
Good reserves (savings) can compensate for poor credit.
FHA is famous for incorporating these loan enhancers into it's underwriting.
A single mom with a degree, newly divorced, credit dinged in a few places and feels completely overwhelmed may think that she has no chance for a mortgage...
Any positive item that contributes to showing less risk for the lender can result in acquiring a new loan.
This single mom may have splotchy credit but she has a $70,000.00 401k and huge job stabiilty of 18 years. The credit shows it was only splotchy during the last 6 months of her marriage but has been perfect for the last 9 months.
These are huge "reconsideration points" and are showing a lender who wants to make a loan (its the only way they make profits)that even though credit is hit there is very little risk that she will not make her payments because the 401k has enough in it to pay for years of payments and not change lifestyle.
Most Underwriters want to see three to six months of reserves. In an FHA loan you do not need reserves to qualify... But if you have at least three months and have other qualifying issues against you... This goes a long way in getting the loan approved.
It is always better to have a third party (in the business)review the total picture. Too many people give up who have had some rough spots in life. Don't give up. The worst that could happen is you learn what you need to do to eventually qualify.
This in and of itself is the most effective compensating factor.
The Compensating Factors Factor>