There are various compensating factors that lenders take into account when considering FHA loans. These factors help to balance out any negative factors in a borrower’s credit history, financial situation, or employment status. Here are some of the most important compensating factors that lenders typically consider:
Payment history: One of the biggest factors that lenders look at when considering FHA loans is a borrower’s payment history. Lenders want to see that borrowers have made timely payments on all of their debts in the past.
Savings and liquid assets: Another important factor is a borrower’s savings and liquid assets. Lenders want to see that borrowers have enough money in the bank to cover emergencies and unexpected expenses.
Low debt-to-income ratio: Lenders also look at a borrower’s debt-to-income ratio (DTI). A low DTI indicates that a borrower has few debts relative to their income, which makes them more likely to repay their loan.
Stable employment history: A borrower’s employment history is another important factor that lenders consider. Lenders like to see that borrowers have a stable job history and consistent income.
High credit score: A high credit score is another factor that can compensate for other negative factors. A good credit score shows that a borrower has a history of responsible credit use and repayment.
Reserves: Having reserves – additional funds set aside for emergencies – can also be a compensating factor. Lenders want to see that borrowers have enough money in reserve to cover unexpected expenses.
Manual underwriting: In some cases, lenders may manually underwrite FHA loans. This means that they may look at other factors beyond the standard requirements to determine a borrower’s creditworthiness.
Mortgage insurance premium: Finally, lenders may consider the size of a borrower’s mortgage insurance premium (MIP) when deciding whether to approve an FHA loan. Borrowers with lower MIPs may be seen as less of a risk.
It’s important to note that not all lenders consider the same compensating factors, and some may weigh certain factors more heavily than others. Additionally, compensating factors may be more or less important depending on a borrower’s individual situation.
If you’re interested in applying for an FHA loan, it’s always a good idea to talk to a lender who can review your specific financial situation and help you understand what compensating factors may be most important for you.
At Mortgage Brokers Pro , we have extensive experience working with borrowers who are seeking FHA loans. Our team can help you understand the requirements and compensating factors that lenders consider, and assist you in finding the right loan for your needs. Contact us today to learn more about how we can help you secure the financing you need to achieve your goals.