Mortgage Industry FAQ – Part 4


Q61.   What factors could delay the approval of a loan?

A.   There could be delays in the approval process, if the borrower does not present the necessary information accurately. The borrower should let the lender know about any change in his financial status before the loan is closed.

Q62.   What is the credit score requirement for a borrower to be approved for a mortgage program?

A.   The credit score requirement depends upon the loan program. By a conservative estimate, a minimum score of 620 is required for a conventional mortgage and a score of not less than 580 is required for a government-sanctioned loan.

Q63.   Can a borrower apply for any loan program with a credit score less than the values specified above?

A.   A borrower with a lower score may apply for a sub-prime loan program.

Q64.   How does the credit report of a borrower affect his chances for qualifying for a loan?

A.   The entries recorded in the credit report card of the borrower constrain his chances to qualify for different mortgage programs. If a borrower declared his bankruptcy in the past, he may not qualify for a conventional loan within 2 years after the period of bankruptcy.

Q65.   What information does the credit score convey to the lender?

A.   Credit scores of a borrower present the several details to the lender. These consist of the period in which the credit has been built, the amount of credit available against the amount of credit used and any negative information like bankruptcies. Lenders evaluate these data to establish if the borrower will be able to make the monthly payments on schedule.

Q66.   How does the debt to income ratio affect the chances of getting a loan?

A.   The debt to income ratio is arrived at by dividing the sum of monthly debts by the monthly income. If the value exceeds 36% the borrower will not be approved for a conventional loan but may be sanctioned a government loan. If the value is greater than 45%, he will not qualify for a government loan either.

Q67.   How does a poor credit rating hinder the prospective homeowner?

A.   A poor credit rating implies that the rates of interest will be higher. This is true for a first time loan and refinancing, as well.

Q68.   Should a homeowner engage in a refinance program to pay off his credit card debts?

A.   This is a very risky venture as the homeowner is risking his property in order to make the credit card payments. The homeowner may embark on the process of refinancing, if he can raise the capital to pay off the original mortgage before paying the credit card bills.

Q69.   What is Chapter 7 of the United States Code?

A.   The terms of this code allow a procedure in which a bankruptcy trustee cancels most of the debts of a person who has filed for bankruptcy. At the same time, the trustee may sell some of the property of the individual to pay off the some of the creditors.This procedure requires a visit to a bankruptcy court and takes six months to complete.

Q70.   What are the benefits of the Chapter 7 procedure?

A.   Filing for a Chapter 7 procedure offers a temporary respite for the individual. This is known as an “Order for Relief.” The creditor cannot forcibly seize property, cut off welfare benefits or demand money from the homeowner.

Q71.   What is Chapter 13, Title 11, of the United States Code?

A.    This is more generally known as the Chapter 13 and is a chapter of the Bankruptcy Code of the USA. The provisions of this code allow a plan in which individuals may enter into a finance program watched over by a national bankruptcy court.

Q72.   Can a bankrupt person file Chapter 7 and Chapter 13 at the same time?

A.   If a person can be expected to file for a Chapter 13 plan, based on his income and expenses, he may not file for a Chapter 7 procedure.

Q73.   How can a bankrupt person who wishes to buy a mortgage loan use the Chapter 13 plan?

A.   An individual who has declared his bankruptcy may use the Chapter 13 to his advantage. He may propose and submit a plan to a bankruptcy court for a hearing. The plan must contain proposals for repaying his creditors over a certain period. If the court approves of the plan, the prospective borrower may submit it to the lender at the time of mortgage application.

Q74.   Can an individual apply for a refinance program over an existing mortgage using the Chapter 13 plan, if he files for bankruptcy?

A.   A bankrupt individual wishing to refinance his home may avail of the Chapter 13 plan. The lender will make sure that the bankrupt person has made payments to his creditors for a period of not less than two years. If the individual waits for a further period of two years, after satisfying the requirements in the Chapter 13 plan, he may expect to get a better rate of interest.

Q75.   How can a bankrupt person use the Chapter 7 plan to get refinance program?

A.   A bankrupt individual must file the Chapter 7 plan and fulfill all the requirements of the procedure.  He can wait for a period of a minimum of four years to get a favorable rate of interest on the refinancing mortgage.

Q76.   When should a homeowner apply for refinancing?

A.   A homeowner with an existing mortgage program on his house may take advantage of current low interest rates and apply for a refinancing program for his property. An increase in the credit score of the homeowner can be another reason to enter into a refinancing arrangement. Homeowners finding it difficult to meet existing monthly payments on the first mortgage may apply for a suitable loan to facilitate the scheduled payments.

Q77.    Can a person apply for a refinancing, if the value of the home is less than the original cost?

A.   If the value of the home falls with respect to the original cost, you may get a refinance easily, as long as the worth of the property is greater than what you owe on the original mortgage.  The lending institution may not agree to refinance if the current value of the home is less than the sum required to make the remaining payments of the original mortgage.

Q78.   What are gift letters?

A.   Some homeowners may get monetary gifts from relatives. They might decide to invest the amount as a down payment for the mortgage loan. The lending institution requires a proof that the money is a gift and not a loan from any other source. This is done to establish if the debt burden of the borrower is more than what he is declaring publicly. The lender requires an original version of a gift letter from the person granting the gift money. The letter should state without any ambiguity that the money is indeed a gift and not a loan.

Q79.   What may happen if the gift letter is not genuine?

A.   If it is established that the letter is not authentic and the gift is actually a loan given by some other lender, then this constitutes a mortgage fraud. This is a criminal offense punishable by the law.

Q80.   How should a prospective homeowner apply for a mortgage?

A.   Visit local banks and credit unions to get details of mortgage programs. Look around for good rates. Get an idea about the rates before looking for a house. You may take on the services of a local mortgage consultant to help you out.


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