Qualifying Borrowers In Today's Market - Tip #1

Qualifying Borrowers In Today's Market

The landscape has changed significantly in recent months when it comes to qualifying borrowers for mortgage refinancing. During the recent mortgage boom, nearly every homeowner qualified for a refinance. However, with the reduction in high LTV products, tightening of underwriting guidelines and a drop in property values, the savvy originator will be more strategic and diligent in identifying qualified leads, while the failing originator will employ the old methodologies. Their result will be lots of applications, but no closed loans. Over the next few weeks I will share with you some tips for qualifying borrowers in today's market.

Determining Lendable Equity: The first and foremost qualifying requirement is lendable equity. Simply put; no equity, no deal! With the recent nationwide slowdown in home sales, home values have decreased by at least 10% in most markets. Unfortunately, the borrower (and many originators) still assume property value increases.

Tip #1: Apply an 80/85% rule (depending on FICO score) to the last verified value in determining current equity potential. If there is no equity at an 80/85% calculation, there probably is no loan. This will allow for reduction in value and provide a “cushion” for equity to help the borrower pay off debt and reduce payments, taxes and term.