How do Home Equity Lenders Underwrite and Approve Mortgage Loans?

By Art Nourian

Borrowers ask me all the time, "How Do Home Equity Lenders Approve a Loan?" The first area of concern is your credit. Take a few minutes and look at a current copy of your credit report. The report display your 3 Fico scores from Trans Union, Experian and Equifax. These three credit repositories report how much you owe, how close you are to your revolving credit limits, how often you pay on time, and whether or not you have had a previous bankruptcy, judgment, repossession, foreclosure, charge-off or delinquent accounts.

If your credit isn't stellar, you will need compensating factors to counter the bad credit blemishes that the bureaus are reporting. Think about your possible compensating factors for a moment. Have you earned a lot of equity in your home? How long have you lived in your current residence? How long have you been with your current employer? The more equity you have in your home, the lower the loan to value (LTV) and this is a good selling point to the mortgage lender considering your loan submission, because it means that you are a reduced risk borrower because their is attainable money in your home. Some lenders have a maximum loan to value of 80%, while other home equity lenders will offer loan amounts as high as 125%.

Job stability is note-worthy and worth having the loan officer sell on your behalf. A high credit score (700+) is another strong compensating factor that can work in your favor for an approval to purchase a new home, refinance or consolidate debt. If you have a poor credit score, the home equity lender may cushion their risk by limiting the loan amount, and increasing the interest rate.

If you have had adverse factors impair your credit, then writing a strong letter of explanation is recommended. This letter should explain the reason for incidental credit problems that occurred as a result of this specified personal obstacle. (ie. being laid off because of company down-sizing, or significant medical expenses) Believe it or not, this can make a huge difference in whether or not the underwriter grants you an approval for the loan. Make sure that the letter is clear and direct in explaining that this was an isolated incident and that it was a temporary setback that won't happen again. Home equity lenders need to understand your situation, if you want them to make a loan exception.

Art is one of the most respected mortgage finance writers published on the internet. When Art isn't being towed into monster surf in Baja California, you will find him typing away in a quaint coffee shop somewhere between Santa Barbara and San Diego. To learn more about today's interest rates for purchase mortgages, refinance and home equity loan programs, please visit, Home Equity Loan Rates. Art suggests visiting the loan assistance center at Nationwide Mortgages and learn more about the direction of the market for Bad Credit Mortgage Refinance. If you need additional help or advice from loan professionals, then ask about the "Zero Down" home purchase specials for 100% Home Loan Financing.