The Finance Blogger

Home Equity Mortgage Loans

 Home Equity Mortgage LoansOur last question came from a reader in Lorain , Ohio. They are trying to understand why they cannot get pre-approved  for Home Equity Mortgage Loans. The information they provided can be summarized as follows – income is $65,000, mortgage equity request – $150,000, credit card debt is $0 and they are in stable jobs.  They currently rent and have 10 credit cards between them. they also have $10,000 as a down payment. They would like to know what the best plan would be for them, given this situation.

 Home Equity Mortgage Loans

To begin with a $150,000 over a 25 year period at prevailing interest rates is going to cost approximately $800 per month. Adding property taxes to this number assuming $2400 a year for taxes brings the monthly payment up to $1000 / month. This is of course an estimate since the actual tax amount will depend on the home that is purchased.  This level of monthly payment places then at the high end of what is normally considered by many banks.  The ratio of principal , interest and taxes should not exceed 40% and most banks are looking for a lower number.

With only $10,000 to use as a down payment, they are looking for what is called a high ratio  mortgage which usually attracts a higher interest rate driving their monthly costs even higher. Typically lenders are looking for a minimum of 15% of the cost of the home as a down payment. they should have closer to $23,000 as a down payment to meet the minimum down payment criteria.

They both hold stable jobs and have been at their jobs for a period of 5 years which is definitely in their favor.

Credit Ratings

Although they have a zero balance on their credit cards, they do have 10 credit cards between them. This is quite a few credit cards. They do not indicate what the maximum approved credit limits for these cards are. They could be $5,000 each representing another $50,000 in potential debt. Anyone doing a credit check on this couple is going to see a good credit rating in terms of meeting payments etc,. However once they see that they have as many credit cards as they do and given the high ratio mortgage they are looking for, the decision will be negative in terms of approving a  Home Equity Mortgage Loan.

Loan suggestions

Our reviewers feel that this couple should do the following to improve their credit worthiness :

  • Reduce the number of credit cards to 4 between them
  • Reduce the size of  Home Equity Mortgage Loan they are applying for
  • Increase their down payment to at least 15% of the value of the home

Taking these steps will help to improve the odds of being approved for a  Home Equity Mortgage Loan.

Your comments are welcome, particularly comments that have suggestions etc to benefit our readers. If you want to leave a link back to your web site, please leave an excellent comment. It should relate to the topic. We will approve your comment along with the link as well. For More information about credit repair, click here.


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One Response to “Home Equity Mortgage Loans”

  1. These posts about debt and mortgages are great. I wish I had someone doing this for me when I was growing up

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