This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

How to Get Your Mortgage Approved

NEW YORK ( TheStreet) -- It's a mystery that matters: Some lenders will approve your mortgage application, others won't. How come? And how to you find the ones most likely to say yes?

If it were simply a matter of one person lending to another, it would be easy to understand different results. One lender might have more money on hand than another, or one lender might know you better or simply have a more trusting nature.

But since the financial crisis, about 90% of new mortgages have been backed by a government entity: Fannie Mae, Freddie Mac or the Federal Housing Administration. Those organizations set the underwriting standards, which are rules that determine whether an applicant gets approved -- things such as the borrower's income related to the size of the loan. Lenders must abide by those rules or they can't sell mortgage-backed securities to investors. So if the rules are standard, why the different approval decisions?

Jack M. Guttentag, an emeritus professor of finance at The Wharton School, explains that the standardized rules are a minimum, and some lenders choose to be more restrictive. The FHA, for instance, doesn't set a minimum credit score for approvals. Some lenders therefore use 640 out of 850, others go as low as 580.

Lenders may impose tougher standards, says Guttentag, to avoid the problems that can follow after a borrower stops making payments. Too many such incidents will undermine the lender's ability to get the backing it needs from Fannie, Freddie or FHA.

"In addition, loan underwriting includes some judgment calls, exposing lenders to the risk that their judgment might be overruled by the relevant agency," Guttentag says on his website, The Mortgage Professor. "The adequacy of property appraisals is an important example. If Fannie Mae or Freddie Mac determine that an appraisal is unsatisfactory, they will make the lender buy back the loan, while FHA will refuse to insure it."

So lenders with different judgment calls make different approval decisions.

Obviously, this means the borrower should shop around. Online service such as BankingMyWay's and LendingTree's present your initial request to a number of lenders. The responses will narrow the field, with your best choice likely being those with the cheapest combination of interest rate and fees.

To improve your chances at a good loan, consider postponing the process until you can boost your credit score. You might, for instance, pay off car loans or other debt, correct mistakes on your credit report or wait until any late payments are further in the past.

A key factor in winning approval is the size of your loan related to your income. You have a better chance of being approved for a smaller loan than for one that's right at the limit. So you could buy a cheaper house, or scrounge money for a larger down payment.

Finally, consider the size of the loan related to the appraised value of the property. The higher this loan-to-value ratio, the riskier the deal for the lender, because it would be tougher to sell the home for enough to cover your debt if you were to default. So you have better odds of approval with a 20% or 30% down payment than with 10% or 15%.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $95.33 0.36%
FB $101.85 2.30%
GOOG $690.00 1.80%
TSLA $149.83 1.10%
YHOO $27.43 2.30%


Chart of I:DJI
DOW 16,090.46 +76.08 0.48%
S&P 500 1,871.88 +19.67 1.06%
NASDAQ 4,339.5140 +70.7510 1.66%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs