Improving Eligibility for a Mortgage Loan – The Magic Triangle

Improving_Eligibility_for_a_Mortgage_LoanMortgage lending and getting approved for mortgage loans is no easy task these days.  Determining eligibility for a mortgage loan, home buyers are finding it increasingly difficult to get mortgage loan approval. With the increased amount of federal regulation and the wariness of banks and borrowers, getting approved for mortgage is a heavy duty task and a may be a challenging process.

However, if you want to know your eligibility for a mortgage loan, you can check with the Magic Triangle. This triangle considers income, credit and equity to determine whether you are eligible for a mortgage loan.

The three biggest factors affecting mortgage approval are income, credit and equity. If you can satisfactorily show these three factors, you can get a mortgage loan approval. These three factors constitute the magic triangle. If all three are adequate, your “bull’s eye” should fit within the three edges of the triangle.

Income consists of your DTI, or household debt in a month in comparison with your monthly income that is taxable. Equity consists of the equity percentage in your house. Credit is the middle score reported by TransUnion, Equifax and Experian.

When all these three factors are satisfactorily met by the borrower, the circle at the middle of the triangle fits within the three edges of the triangle, which signals a mortgage approval. If you are lacking somewhere, the circle will break through the edge of the triangle, signalling a disqualification. These three factors are thus, the most important factors when it comes finding eligibility for a mortgage loan and getting a mortgage approval.

Compensating Factors and Eligibility for a Mortgage Loan

According to the above posited theory, every ideal applicant would have a high income, amazing credit and big equity. However, there are very few people that would fit all the criteria. In reality, there is something called “compensating factors” that allow applicants to be eligible for mortgage loans as long as they fulfill at least two of the criteria very well.

In other words, compensating factors are strengths in a home buyer’s application that help to balance out the weaknesses.

An example is an individual who has low income but outstanding credit and lots of equity still stands a good chance of mortgage approval.

These compensating factors can only be income, equity and credit. Thus, a factor such as “employment history” is not less likely to count as a compensating factor, but still helpful. As a result, many applicants will find that they have very few legitimate compensating factors. Without these factors, it is a lot tougher to get approved for mortgage.

If the applicant has a low income but normal credit history and not much of equity, it is likely that the applicant will be turned down.

Compensating factors are not official criteria for a mortgage approval. If you do not fit the official mortgage approval criteria but think that you should be approved for mortgage anyway, consider applying for a mortgage loan at any rate. Chances are that your compensating factors will get you a mortgage loan approval in spite of the official guidelines.

To get a mortgage approval for your upcoming home purchase or refinance, call me at 562-257-5008 or click here for an online rate quote. The rate quote will start the process.

About Ric Dizon

Ric Dizon is a mortgage consultant (NMLS 230093) with iMortgage, a premier mortgage banker in Long Beach, California. He's in love with four things in life...being a dad, his Ku'uipo Pamela, Hawaii and finding you the right home loan. More about Ric. Connect with Ric on Facebook, Google+, Pinterest, Twitter and check out his Instagram photos.

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