Michigan Refinancing | MI Refinance

Only One is Your Credit Score!

Most people realize that their credit score is an important factor in qualifying for a Michigan mortgage, but there are several additional criteria that must be met, in order to successfully get your loan closed and funded.  Michigan refinancing approvals and purchase loan approvals, depend on much more than just a good credit score.  The purpose of this article is to help potential borrowers become more aware of the most common underwriting criteria that lenders review during the mortgage approval process.  These are also the same factors used to determine the appropriate rate and terms of any loan offered.

This list may not be all inclusive, or apply to your specific situation.  I recommend you consult with a professional mortgage advisor to review your specific scenario.  The following factors are generally reviewed by the underwriter assigned to your loan, or in some cases by your loan processor or loan originator.  Generally the underwriting guidelines have specific tolerances assigned to each factor, however in some cases exceptions may be made, when there are strong compensating factors to support an exception.

The specific criteria that each lender/loan program requires vary and are changed from time to time depending on market conditions.  At the time this article was written, the mortgage industry was in a contraction, and underwriting guidelines have been getting increasingly more stringent.  So please consult with your mortgage professional to find out more details, as they relate to your scenario.

Mortgage underwriting criteria which must be met to qualify for a Michigan refinance or purchase mortgage typically fit into one of two categories; Credit factors and Non-Credit factors.

CREDIT FACTORS REVIEWED FOR MICHIGAN MORTGAGE APPROVAL INCLUDE:

1.  Credit Scores

Most people realize that their credit scores play an important role in getting a mortgage approved, however when asked which of their 3 credit scores is used, many people have no idea.  Most mortgage lenders review all 3 major credit bureaus (Experian, Equifax, and Trans Union) and use the middle of all three for mortgage approval and risk determination.  Meaning the score that is not the highest, not the lowest, but land in between the other 2.

General Rule: The higher the credit scores the better.

General Requirement: Minimum credit scores per loan program must be met along with additional approval factors per loan underwriting guidelines.

Michigan Refinancing Tip: Try to pay all bills on time, and don not exceed 50% of your available credit line on credit cards and  lines of credit.

2. Credit History

Without a sufficient credit history, or track record, it is very difficult for a lender to asses the risk of your future performance.  Sometimes you can have a very strong credit score, but not much time or depth of credit and payment history.

General Rule: The longer length of time reported to the credit bureaus, the better.

General Requirement: Minimum length of time required with certain type of credit lines/loans usually required.

Michigan Refinancing Tip:  Avoid closing out accounts when possible, so you can keep a deeper history of active credit.

3.  Delinquent Accounts

General Rule: The lower number of delinquent accounts, or late payments, the better.

General Requirement: Maximum allowable delinquent accounts in a specific time period.

Michigan Refinancing Tip: Sometimes, you can negotiate with creditors to remove the accounts, upon payment, and potentially bring up your credit scores.

4.  Mortgage/Rental Account History

General Rule: The lower number of late payments and the better, and the more successfully closed accounts the better.

General Requirements:  Maximum allowable late mortgage/rental payments required to be met within specific time period.  Maximum allowed mortgage accounts open at one time.

5.  Revolving Credit Utilization

General Rule: Balances equal to 50% of the available credit line is optimal.

General Requirement: None of the account balances exceed the limits, and must not exceed the maximum number of late payments in a specific time period.

Michigan Refinancing Tip: 50% rule and try to leave these open, rather than closing the accounts.

6.  Public Records – Judgments, Liens

General Rule: The older the better, as well as non housing related (apartment/landlord) are better than housing related.

General Requirement: Letter explaining the details as well as any legal paperwork, often required to be reviewed.

7.  Foreclosures

General Rule:  Never having a foreclosure is best, but the older it is the better.

General Requirement: If the lender/loan program allows a foreclosure at all, borrower will likely have to meet the minimum time required after foreclosure and provide a detailed letter explaining why the foreclosure occurred.

8.  Collections Inquiries

General Rule:  Zero is best, but the lower number of collection accounts and the lower the dollar amount of the collections, the better.  Older collections are less relevant than newer ones.

General Requirement: Maximum allowable number of collection accounts and cumulative dollar amount not exceeded.

9.  Bankruptcy

General Rule: No bankruptcy is best, but Chapter 13 bankruptcy is usually less stringent than a Chapter 7.

General Requirement: Minimum time required out of bankruptcy, can vary by type, also minimum time rebuilding credit (see 2. credit history above).  In addition, many lenders will require a detailed letter explaining why the bankruptcy occurred.

NON CREDIT FACTORS REVIEWED FOR MICHIGAN MORTGAGE APPROVAL INCLUDE:

10.  Down Payment – Equity or LTV (Loan to Value)

General Rule:  The larger down payment (purchase), or larger the remaining equity after closing (refinance) the better.

General Requirement: Minimum down payments required, or maximum loan amount to appraised value required by loan underwriting guidelines.

11.  Liquid Reserves after Closing

General Rule:  The more liquid assets or money saved and easily accessed the better.

General Requirement: Minimum number of monthly payments remaining after closing must be met, per loan underwriting guidelines.

12.  Loan Purpose

What you are using the loan for, is another factor that lenders review.  Basically certain loan purposes are more risky for lenders to make, than others, so the criteria may be more stringent for these loans.  An example of this is when refinancing, if you elect to take cash out, or get money back at closing, those loans are inherently more risky.  Therefore, the lender’s underwriting guidelines are usually more restrictive for that loan purpose, when compared to someone only refinancing the balance.

General Rule:  Purchase and No-cash out refinances are usually among the least risky to the lender.

13.  Loan Term

General Rule:  The short the term generally the better, however this typically affects other factors (see expense ratio)

14.  Amortization Type

General Rule:  Standard amortization is least risky, then interest only, then negative amortization.

General Requirement: More restrictive guidelines as the risk increases for the lender, as well as higher rates/costs in many cases.

15.  Occupancy Type

General Rule:  Owner occupied offer least risk to the lender, then secondary residence, then investment property.

General Requirement: More restrictive guidelines as the risk increases for the lender, as well as higher rates/costs in many cases.

16.  Total Expense Ratio – Debt to Income Ratio (DTI)

This is the amount of monthly payments you have going out every month, divided by the amount of income you have coming in.  This is usually calculated on a before tax income.

General Rule:  Lower the better

General Requirement: Must not exceed maximum debt ratios as required by loan program.

17.  Property Type

When it comes to residential mortgages, the standard single family home is the least risky to the lender.  When you start looking at different property types, the underwriting guidelines may get more restrictive.  For example condominiums have additional considerations the lender must take into account, such as what happens if the home owners association or builder goes bankrupt and no longer keeps up maintenance as agreed, and other factors.

General Rule:  Single family homes carry the least risk, and lowest historical default ratios, and are therefore offered the best terms.

General Requirement: property type must meet the specific allowable property type guidelines for the loan program and or lender requirements.

18.  Co-Borrowers

Adding a co-borrower can either add additional risk to the lender or in some cases reduce risk to the lender, depending on all of the factors for that particular borrower.

General Rule:  Co-borrowers, who have additional income without exceeding the expense ratio requirements, can bring value to your mortgage application, assuming that they also meet or exceed all of the credit factors.

General Requirement: Lenders usually look at the combined expense ratio and assets, and the lower of the two middle credit scores, when reviewing a loan with a co-borrower.

19.  Self Employment

General Rule:  The longer time in business for self, with a solid history of income, the better.

General Requirement: Must meet the expense ratio requirements based on average income calculations, as well as have solid earning history of the business and meet the minimum time in business, per the underwriting guidelines.

20.  Seasoning of funds for Down Payment (Purchase Loans)

General Rule:  Save up your down payment prior to shopping for a home, or at least prior to making any offers to purchase.

General Requirement: The money used for down payment must be in an account for a specific minimum amount of time, before closing, as required by the loan program.

21.  Time of Ownership Prior to Sale (Seller Seasoning – Purchase Loans)

There are special underwriting guidelines or restrictions for certain properties, such as homes where the last transfer of ownership was a short sale or foreclosure, which requires the home, is owned for a specific period of time, prior to approving a mortgage on it.  This is a newer factor that has come about due to some of the fraudulent activity that has occurred in the real estate market.

General Rule:  The longer the seller has owned the property the better.

General Requirement: The seller must be the owner of the property for a specific period of time, prior to selling.

FINAL THOUGHTS ABOUT MICHIGAN REFINANCE AND PURCHASE MORTGAGE APPROVAL CRITERIA

As you can see, getting approved for a Michigan mortgage takes much more than just a great credit score, there are 20 additional factors to consider.  In the not so distant past, it was much easier to get an approval, since the criteria required was much more flexible.  With the record numbers of foreclosures and mortgage delinquencies plaguing Michigan and the entire nation, no thanks to record setting unemployment rates and the like, mortgage lenders have been increasing their underwriting criteria.

Successfully navigating the Michigan mortgage market requires the assistance of a professional with years of experience, who can help you overcome any obstacles as they arise.

Having the minimum credit score to qualify for a particular mortgage loan program is only the beginning.

Please feel free to leave comments and questions below.

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