So you are thinking about buying a house, or maybe just refinancing your current home. So you go to the bank (or Credit Union) either online or in person to apply for the loan. You’ve done your part, filling out all the paperwork. Now it is the underwriter’s turn to do his work. But what is he looking for? His job is to determine your credit worthiness. To do this he will look at three C’s: your collateral, your capacity, and your credit.

Collateral. In most cases, the property you are taking the loan out for is the collateral for the loan. In case of default, this is what the lender has to sell to recover their losses. They will look at the value, the marketability, and the condition of the property. The loan officer will also look at the money you have available for down payment, closing costs, cash reserves and other assets you may have.

Capacity. Next, the loan officer will look at your capacity to pay off the loan. He will look at things like your gross income(in relation to expenses), your employment history (do you have stable employment), and length of time at current / past residences (do you move around a lot). He will look at your debts that may affect your ability to repay a loan. He wants to know that you have the money available to pay a monthly loan.

Credit. What is your credit history – how have you handled loans and credit in the past. Do you use excessive credit? Have you paid off other loans? Can you handle additional debt or will it become a burden?

After looking at your collateral, capacity, and credit, the loan officer will make a determination whether or not you will get the loan. The better your collateral (the lower the loan amount is to the estimate of the collateral the better), the greater your capacity (earnings exceed expenses), and the wise use of credit in the past will all work favorably toward you being accepted for a loan.

If you have specific questions, you should talk directly to a banker; each financial institution will have different parameters for approving loans. But by knowing what a lender looks for in general can show you areas that you need to address before applying for a loan, and whether it is the right time for you to be applying for a loan. It will also help you be prepared to answer any specific questions a lender might ask.

Hi there - could you help spread the word about A Penny Saved? We rely on word of mouth to get new readers. If you would send someone a link, email, or even mention it to your friends, I would truly appreciate it. How a Bank Underwriter looks at your Loan is a post from: A Penny Saved, the best darn personal finance blog around.

For work I was at a local branch of PNC Bank, which is also my personal brick and mortar bank. Now I hardly ever have to go inside a bank what with ATM’s and on-line banking. So I was just curious and looked over their information for fun and they had a “Preparing for Homeownership Qualifier Worksheet” booklet that piqued my curiosity.

FYI, PNC is a regional bank that operates in 17 states, mostly in the East, but also has branches in the Midwest. It is currently the fifth largest bank in the U.S. Anyway, I have my loan through Wells Fargo, a fixed rate 30 year loan at 4.75%. But I was curious to see what a bank would tell you about qualifying for a loan.

After some introductory fluff, they talk about the down payment you will need. They state that lenders require home buyers to contribute funds toward the purchase of a home. So far so good. Then they tell you that the down payment can be as little as $500, and that no down payment is required for VA loans, and that there are down payment assistance programs available. Isn’t that kind of thinking by banks and individuals part of what got us into the housing mess we are in now? I was pretty surprised. Now maybe they just say that and there qualifying is stricter, but I was shocked that they would say things like that in print. Generally speaking, I believe personally that if you don’t have at least a 20% down payment, you should not be buying. Of course there could be exceptions, but not many.

The material then went over some of the costs of owning a home, things like monthly mortgage payment, taxes, insurance, repairs and maintenance, utilities, furnishings, etc.

Then came the qualifying worksheet. It was a pretty simple do it yourself check. Basically, they want you to have only 28% of your gross monthly income going toward monthly housing expenses (mortgage, taxes, insurance). They also want your total monthly debt to be less than 36% of your gross monthly income. Again, I think those numbers are high. Currently, my monthly housing expense is 18% of my gross monthly income. My total recurring debts is the same (only have a mortgage – no car or credit card debt).

My Mom, before she retired, worked in the lending department of a bank. As she has reminded me more than once – thae banks goal is to make money off of you; your job is to not let them! The more that they can get you to borrow, and they will try to get you to borrow more than you should, the more money they make.

You need to go in knowing what you can comfortably afford, not what a Bank or Credit Union or whoever tells you you can afford – even it its printed! Sadly, even after the crash, things haven’t changed that much in banking.

Hi there - could you help spread the word about A Penny Saved? We rely on word of mouth to get new readers. If you would send someone a link, email, or even mention it to your friends, I would truly appreciate it. PNC Bank Qualifier Worksheet is a post from: A Penny Saved, the best darn personal finance blog around.

Our Dodge Caravan died on my way back home from seeing my parents last week - transmission fail. So this week has been a zoo trying to take care of that, getting my wife to doctors, purchase another vehicle, and o yeah, try to get some work done at the office!

Before we purchased anything, my wife and I sat done and discussed what our goal was for the vehicle, and then what type of vehicle we wanted to search for (SUV, Van, Small Car, etc.). We decided that our goals were the following:

• Do not go into debt – use whatever cash we have on hand, even if it means missing a “great deal”. No debt for depreciating assets.
• Buy a van for the family to use around the area. Does not need to make long trips, just able to get us to places within a 30 minute drive (maybe an hour to my parents!).

With those goals, I did some research on the internet through Kelly Blue Book and Edmunds web sites. I also called a friend from church who owns a business doing repair work on cars and also with his brother sells used cars (separate site). FYI the dealership is called Apple Auto. Anyway, he began looking for what we wanted – a cheap,no thrills van. And he found it! He let us have it for 2 days to drive around to see if we liked it (it’s nice to know a dealer!).  We test drove it, the vehicle worked great, but just to be sure I took it to another friend who is an auto mechanic and had him put it up on the rack to check out. His only suggestion was new tires before winter.

So now we are the proud owners of a very used, high mileage, 1997 GMC Safari. Basically it is a truck made to look like a van  Our minimum expectation is that it will last through the busy summer season when we are going so many different directions as a family. If it makes it one year, we will come out slightly ahead. If it could last 2 years, we would be in great shape! Here’s hoping!

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I like to check my credit report (for free) throughout the year – so I review one credit bureau at a time through www.annualcreditreport.com. This time I chose Experian. Everything looked fine, but while I was at it I spent $7.50 to see my “Vantage Score”. It bugs me that you have to pay for a score that is not really even your actual score – as consumers we should be able to see the data , including our score for free. Now that I am done with my rant, my VantageScore was 870 based on a scale of 501-990. According to their records, this is better than 79.5% of U.S. Consumers. Not bad. This puts me in what they called Prime Plus: the categories from worst to best are – High Risk, Non-Prime, Prime, Prime Plus, Super Prime.

The factors that lowered my score were:

• average loan amount of my real estate account is too low (which is true since I just refinanced last year!)
• the balance amount paid down across my real estate account is too low-paying down the balance will have a positive impact (no kidding! – but again, I just refinanced last year)
• the ratio of balances-to-credit-limits on my credit card accounts is too high (I pay them off in full every month, but I guess I could ask for a credit limit increase)

So, after paying my $7.50 for my “fake” credit score, I then received an offer from American Express (I  have a credit card with them for Costco) for a free credit score! This too was from Experian but it was their PLUS Score. My score on this was 793 on a 330-830 scale. My credit category on this was Excellent, with the categories being – Very Poor, Poor, Fair, Good, Excellent.  On this report, they again listed the factors that could lower your PLUS score. My report said and I quote: “Currently, your credit report does not show any significant negative or derogatory information.”

So two scores from the same company, one better than the other! Basically though, my credit is great. If anything, I could try to raise the limits on my credit card which may boost my score a little bit. The big thing is that I am paying extra each month on the mortgage, so that will also improve my score over time.

Hi there - could you help spread the word about A Penny Saved? We rely on word of mouth to get new readers. If you would send someone a link, email, or even mention it to your friends, I would truly appreciate it. My Experian Credit Score is a post from: A Penny Saved, the best darn personal finance blog around.

I recently read an article by a banking group called Mission Management and Consultants, LLC , who are mortgage bankers and project finance specialists. They work with nonprofits and schools in their financing needs.

According to their article, historically there were four components that bankers and underwriters would look at in determining a borrower’s fitness for a loan:

1. Income of the borrower (ability to pay the new loan)
2. Equity in the project (how much are they putting down, what % of the project is being financed)
3. Stability of the Leadership of the organization (how long has leadership been in place, what is the turnover rate for leadership, etc.)
4. Stability of congregation (if a religious organization) or enrollment (if school)

After all that has happened in the economy, the article talked about bankers using a fifth component – Liquidity when looking at credit approval. Liquidity is a measure of cash on hand. Based on their requirements, they like to see at least 4-6 months of operating reserves in place.

Although individuals are not companies or nonprofits, these 5 components are not bad measures for us to use – especially if we are thinking about taking out loans for cars, projects, etc.

• Is our income adequate to service our current debt without that debt being a burden?
• Are we putting enough down on the project? I would never recommend putting 0% down. I think the old rule of at least 20% down is still a good guideline. If you can’t do that, you may want to rethink going ahead.
• How stable is your family situation? Is divorce on the horizon? Are there major changes coming – a new baby, sickness or death of a loved one? These life events need to be factored in.
• How stable is your work environment? Is your industry prone to layoffs? Your company stable?
• Do you have an adequate emergency fund (liquidity)?

Although these are not all the factors, it is a good place to start to evaluate your current financial situation. With these 5 factors in mind, how are you financially?

Hi there - could you help spread the word about A Penny Saved? We rely on word of mouth to get new readers. If you would send someone a link, email, or even mention it to your friends, I would truly appreciate it. A “New” Financing Component used by Bankers is a post from: A Penny Saved, the best darn personal finance blog around.

Out of curiosity, and in case I need to get a home equity loan (you can tell I am paranoid right now about something else breaking in the house!), I wanted to see what my home’s current value might be. I went to zillow.com and checked out what their estimates were. This last year my home’s value went down 9.4%! Fortunately, since we bought the house in 2004, the house has increased in value by 23%. So we are fortunate that we are not underwater; in fact our house has appreciated over that time span.

Our current mortgage is for only about 67% of the current value of our home, so if we had to (which I am hoping we do not), we probably could get a home equity loan.

I don’t check often, but I do like to go to zillow just to see the trends of our area and what’s happening with housing. It’s not a bad tool to use as you are making financial decisions.

Hi there - could you help spread the word about A Penny Saved? We rely on word of mouth to get new readers. If you would send someone a link, email, or even mention it to your friends, I would truly appreciate it. My Current Home Value is a post from: A Penny Saved, the best darn personal finance blog around.

I did it. I said goodbye to two of my credit cards. Citibank because we just never used it, and Chase because they were going to start charging an annual fee. We are now down to just two credit cards – an American Express that we use mostly at Costco, and our Wells Fargo Visa that puts rewards toward paying off our mortgage.  At the same time, I asked for a limit increase on the Wells Fargo to offset the reduction in credit by canceling the other two cards – I am waiting on their response.

I didn’t make the decision overnight, I have been thinking about it for weeks. But there were so few cons, and in my opinion more pros, that it just made sense for us.Yes, my credit score will take a small hit, but it will bounce back. Also, I am looking forward to having to just reconcile two statements instead of four – simplifying my financial life! It will make budgeting much easier. And now my wallet is a little lighter.

Now I can focus on using my rewards to pay off that mortgage quicker!

Hi there - could you help spread the word about A Penny Saved? We rely on word of mouth to get new readers. If you would send someone a link, email, or even mention it to your friends, I would truly appreciate it. Goodbye Chase and Citi Bank! is a post from: A Penny Saved, the best darn personal finance blog around.

Back on August 4th I wrote a post about our credit card number being stolen. We took precautions and canceled the card. But ever since then we have been wondering how a thief got a hold of the information – we tend to be very careful.

Well last week we received a letter in the mail that explained everything. The letter was from a company called Network Solutions. They provide software services to merchants who do credit card transactions. In their letter they explained that they “recently discovered that information on some credit card transactions, including card account numbers, names and addresses, was intentionally diverted from some of its servers to servers outside of the company by an unknown source.” Over 4,000 merchants were affected. Wow!

So know we know how our information was stolen. The good news? We caught it quickly because we check our credit card info online pretty often. Also, it was good to know it was not something we did. The bad news? No matter how careful we are, when companies mess up or are intentionally hacked our information is vulnerable. Not necessarily very reassuring. Especially since the transactions involved happened from March through the beginning of July – and the letter came in August!

To give proper credit, Network Solutions is doing some things right:

1. They notified us (I have read reports of other companies just sweeping things under.
2. They will give us 1 free year of credit monitoring service
3. They gave tips on calling credit card company, attorney general, and on placing fraud alerts on our credit files.

This incident will not keep us from using credit cards. But it reminds us to be careful and to be vigilent with our data at all times.

Hi there - could you help spread the word about A Penny Saved? We rely on word of mouth to get new readers. If you would send someone a link, email, or even mention it to your friends, I would truly appreciate it. How our Credit Card Number was Stolen is a post from: A Penny Saved, the best darn personal finance blog around.

I just received in the mail my new Chase Freedom credit card which is replacing my Chase Reward card. Their marketing team is very creative!

The new card advertises “rewards without limits” – except that the triple points are limited, very limited (only available on the first $600 of purchases).

The new card advertises “ultimate rewards” – they reduced my 5x points on gas and groceries to only 3x.

The new card is Chase Freedom – except my old card was free, the new card you have to pay $30 a year.

Chase has pretty much insulted my intelligence and told me they don’t want me as a customer. So I will oblige them. As long as I am able, I will refuse to pay an annual fee on any credit card. So I will call sometime this week to confirm receipt of the cards and cancel them immediately. That will leave me with my Wells Fargo Credit Card (that pays off my mortgage) and my American Express (that I use mostly at Costco).

I may just stick with those two cards for awhile, we will see. I am not worried about the small ding cancelling a credit card will make on my credit score. I am not in the market for a car loan or mortgage right now (already refinanced this year), so a little lower credit score won’t hurt me – it will pop back up quickly. I may ask for an increase in spending limit though for the Wells Fargo – that would help offset a little the decrease in credit score by cancelling the Chase.

Hi there - could you help spread the word about A Penny Saved? We rely on word of mouth to get new readers. If you would send someone a link, email, or even mention it to your friends, I would truly appreciate it. Chase Marketing Team Working Overtime! is a post from: A Penny Saved, the best darn personal finance blog around.

The Internet is all abuzz about congress passing credit card reform. Some writers are saying it is a long needed reform and will help individuals. Others are saying that it will just end up being good card holders subsidizing less than stellar card holders.

Frankly, I am probably in the middle. I do think some of the reform ideas were good, but there are always unintended consequences. My one credit card company has already changed their point system downward and has added an annual fee (prior blog on 5/14/09). I expect more of the same from other companies – they will find ways to make money! With defaults rising and the rules of the game changing, I think the days of cashback and no fees may be numbered.

If my other cards start to add fees, or as some commentators have suggested give no grace period (interest begins immediately), then I will probably switch to using a debit card. I keep very little money in my checking account, so the risk is limited. It will mean that I will have to keep a closer eye on my balance, but that is better than paying interest or fees. And right now, my debit card has its own little reward program for usage.

I will probably not carry any more cash than I do now – which is little to none. I will probably begin to carry a check or two in my wallet. We use duplicate checks, so I don’t have to write anything down.

It will be interesting to see how things play out. What do you think?

Hi there - could you help spread the word about A Penny Saved? We rely on word of mouth to get new readers. If you would send someone a link, email, or even mention it to your friends, I would truly appreciate it. Credit Card, Debit Card, Check or Cash? is a post from: A Penny Saved, the best darn personal finance blog around.