Vulnerability to Potential Changes in Your Data

Some of the information you enter for your qualification is subject to change by the lender you select:

Bankruptcy and Foreclosure History: The lender will check your entry against information in your credit report. Enough said.

Property Value: The lender will immediately check your estimate against that provided by an automated valuation system, and will order an appraisal which will become available later. The appraised value is usually the last word. If the appraisal drops your valuation by enough to drop you into a lower down payment (equity) category in the table below, it may affect the loans for which you qualify. You won’t know this until your house is appraised by your lender – don’t waste money getting your own appraisal beforehand because the lender won’t accept it.

You are most vulnerable if the down payment (equity) percent based on your estimate of property value is close to a notch point: 3.5%, 10%, 20% or 25%. If your down payment is exactly 3.5%, for example, any reduction in property value will disqualify you unless you reduce the loan by the amount needed to keep the down payment (equity) percent unchanged.

Loan Amount: Your equity in the property will also be reduced if you don’t have the cash needed to pay all the fees charged by the lender and others, forcing you to finance them. The lender will often pay some or all of these fees in exchange for a higher interest rate, but this makes the loan more costly, especially if you expect to have the loan a long time.

Credit Score: Mortgage qualification requirements as well as pricing are based on credit score bands – all scores within a band are treated the same. Bands are 20 points wide and end with the digit 9, e.g., 680 to 699, 700 to 719, 720 to 739, and so on. Critical notch points affecting qualification are 620, 660, 680 and 720. (Other notch points may affect pricing).

Your lender will receive scores from 2 or 3 sources, and will qualify you based on the lower of 2 scores or the middle score of 3. That score may differ from the one you enter. The difference won’t be large, but it could be large enough to disqualify you, depending on how far the score you enter is to a critical notch point. If you need a 620 to qualify and you enter 650, for example, you are safe, but if you enter 621 you aren’t.

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