If you want to get approved for any type of mortgage – conforming, FHA, jumbo, VA or otherwise – you will need to satisfy the Mortgage Income-Equity-Credit Triangle. As it implies, you will need to show your income, equity and credit. It’s not complicated.
- Income: Your monthly taxable income versus your monthly household debt. This is referred to as your Debt To Income ratio or DTI.
- Equity: The percentage of equity you have in your home. This is your Loan To Value ratio or LTV.
- Credit: The middle of your three scores, as reported by Experian, Equifax, and TransUnion.
When all of these factors are in balance, obtaining a mortgage approval is likely. The ideal mortgage applicant for a bank will have a strong income, big equity, and phenomenal credit. This sounds great, but in reality, not every applicant will. That’s okay. There are “compensating factors” to take into consideration. Compensating factors are strengths in a person’s application that quite literally compensate for the weakness in that same application. For example if a person’s income is weak but their credit and equity are strong, it’s likely they will get approved in underwriting. There are other compensating factors that may work as well.
Here’s the thing though, compensating factors are unofficial; they are simply the common sense obvious that get interpreted in an otherwise very square and sterile mortgage lending process.They could, however, get you approved and worth a shot at trying. Get out there and try! It could be the difference between dreaming of a home and actually moving into it.