Unique Attributes of Colorado Conventional Mortgages
The key to the process of determining whether you are eligible for a conventional loan, and for how much you are qualified for, is to complete an application with your mortgage consultant and ask that you be preapproved through an automated underwriting process. This means that your approval will be issued as a function of a computerized underwriting process, which will take into account your income, credit, asset and job/income history, and issue an approval (or denial) decision.
Automated Underwriting (AU): AU means that a potentially unique set of underwriting rules is issued for every borrower who applies for a mortgage and is run through this process. In other words, automated underwriting sets its own rules every time a decision is made. Each borrower's approval looks different, with a different set of rules applying to each unique situation. Underwriting rules are made and broken every time a borrower is approved for a conventional mortgage utilizing automated underwriting.
Standard debt to income ratios historically have defined the size of the mortgage for the borrower to a set percentage of the household's gross monthly income. This can be very limiting for some borrowers who are capable of spending beyond the standard restrictions. Now this problem is fixed - so much so - that it's now critical for the borrower to define (ahead of the application process) the size of their total monthly mortgage payment based on a budget. If this doesn't happen, it's quite easy for the borrower to get into trouble financially by borrowing more money then their monthly budget will support.
Another example of the flexibility of AU involves type of property and appraisal waivers. Condominiums and attached PUD's (townhomes) must meet an owner occupancy requirement for conventional financing (61% of the units in any given project must be owner occupied). With AU, it's now possible (depending on the AU findings) to submit for a property type waiver that, if granted, results in conventional financing for properties that were previously not eligible for financing (or if financing were available, the rates were higher due to the increased risk of the property type). Likewise, with some AU findings comes the option for the borrower to waive their appraisal, instead paying a $50.00 waiver fee.
Yet another example of the power and flexibility of AU involves the way income is evaluated. The traditional challenge for self-employed or commissioned borrowers has been proving income. Typically this has been done by disclosing the two most recent tax returns, developing a twenty four month income average. This can be very limiting for borrowers who are experiencing substantial increases in income. With automated underwriting, the rules for number of years of income and how the income must be documented are generated with each finding. For some borrowers, this means the difference between a conventional solution and an alternative solution that costs the borrower more money.
Conventional mortgages guidelines have expanded so greatly recently that borrowers who may have been pushed towards subprime solutions in the past, may now be able to obtain conventional financing. This is due to a combination of factors: Fannie Mae has been pursuing less than perfect credit solutions as part of its conventional mortgage offerings, and these solutions are now built into their automated underwriting engines.
FHA and VA also utilize AU, but the degree to which AU can have an extraordinary impact in the outcome of the loan decision is potentially greater with conventional loans.
Last updated: Monday, 10-Nov-2008 10:04:29 EST
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