Mortgage Compensating Factors

Mortgage compensating factors are what makes mortgage guidelines seem so inconsistent. You have probably read the basic mortgage guidelines and understand that normally they are followed to the letter. However, all customer portfolios are different and nothing is so black and white it is set in concrete. If you have three very strong compensating factors they can compensate for one area where you may fall outside the guidelines.

One very good example of compensating factors are Debt to Income Ratios. Most loans today are sent through automated underwriting programs that grade your application and approve or don't approve your loan. (Desk Top Underwriting, Prospector, The Black Box)

I know a couple that had a 60% back ratio and were approved for a $200,000 Fannie Mae Loan. Fannie Mae back ratio max is 36%. Their compensating factors were: Each had 18 years on the job, Each had retirement accounts over $150,000, and both had credit scores over 750. Without those three factors they would have been turned down for the loan.

So, nothing is really in concrete. Mortgage compensating factors can be any of the following: Ratios, credit score, equity/down payment, assets, and time on the job.

You can see why it is very important that you get an experienced loan officer.