As you study a lender's underwriting guidelines, remember, these are guidelines. Most lenders do not evaluate their mortgage loan applications from investors by rote. Instead, lenders weigh and consider. You can persuade a lender to approve your loan. Emphasize your positives and play down or explain away negatives.
If your debt coverage ratio is low, show the lender how you plan to improve the property and increase rents. If you have blemished credit, offset it with a higher down payment or pledged collateral. If you've frequently changed jobs, point out the raises and promotions you've received. If you lack experience in property ownership or property management, tell the lenders how you've educated yourself by reading real estate books and how you've developed a winning market strategy (see Section 11).
Use employer letters, references, prepared budgets, a business plan, or any other written evidence that you can come up with to justify your loan request. Anything in writing to persuade the lender that you are willing and able to pay back the money you borrow may help. In close (and not so close) calls, compensating factors can make the decision swing in your favor.
Remember, too, lenders differ-especially when dealing with investors. What one rejects, another accepts. To get the loan you want, thoroughly search the mortgage market. With thousands of lenders competing for loans, chances are you can find a lender that's right for you. If not, work to improve your financial fitness and borrower profile.
Automated Underwriting (AUS)
Since the late 1990s, mortgage lenders have relied on automated underwriting. Using this system, a loan rep gathers pertinent underwriting facts and enters them into a software program.
If your credit profile matches the acceptable profile in the software, that's great. It means a faster, less costly path to closing and a shorter stack of paperwork. On the other hand, if your personal situation needs "outside-the-box" attention, be sure to work with a savvy loan rep who can apply the skill and knowledge necessary to get your loan approved or at least tell you the reasons why your application falls short and how you can work to overcome deficiencies.
To see how you might fare with automated underwriting, go to myfico.com. From this site, you can learn your credit scores and obtain pointers on how to improve them.
Yet remember, automated underwriting (ADS) looks at more than your credit score. These programs incorporate calculations that evaluate your qualifying ratios, earning power, cash reserves, debts, and assets. When your tri-merged credit scores exceed, say, 740 (or so), the ADS will loosen up on other standards. Conversely, a lower score of, say, 640 (or so) will cause the ADS to subject your financial profile to stricter standards.
Exactly how ADS programs make these tradeoffs remains a guarded secret. But savvy loan reps have developed some rule-of-thumb insights. So ask them. Benefit from their experience.