Could You Qualify for An “A” Paper or Prime Loan?

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Please Note: We are not a bank nor do we give out loans. Each bank has its own set of rules to decide whether or not to give a person a loan. The criteria given below is meant to be used as a guideline only.

An “A paper loan” is another term for a prime loan. This type of loan is for a person with a credit score of 680 or higher, can fully document his/her income and assets, their debt to income ratio does not exceed 35 percent, has two months of mortgage payments in reserves after closing, and can inject at least 20 percent equity into the transaction.

“A” Credit This means:

  • You have not been late on a mortgage or rent payment in the last two years.
  • You have not been late on a car payment in the last two years.
  • You have not been more than 30 days late on a credit card payment more than twice in the last two years.
  • You have had no collections (other than a small medical collection) or any judgments in the last two years.
  • Your credit score is good to excellent, perhaps 680 or better.
  • An A paper borrower must have at least two months of mortgage payments in “liquid reserves.” This can be in a checking, savings, investment, or even retirement account at any financial institution.

See more details on deciding if you have A credit.

Sufficient Income This means:

  • Your total mortgage payments per month are equal to 30 percent or less of your gross monthly income.
  • Your total payments per month (not including insurance, utilities, food) are equal to or less than 36 to 41 percent of your gross monthly income.
  • You must be able to prove your income. Examples: tax returns, bank statements, pay stubs.
  • In order to count your full income, you must have been employed in the same line for work for the last two years.
Stability Although credit and income are the biggest two deciding factors on whether or not to give someone a loan, stability plays a part. Good stability means:

  • You have been in the same line of work and/or job for 2 or more years.
  • You have lived in the same house or apartment for more than 2 years.
Down Payment You cannot buy a house without making a down payment. Typically you need to have saved up an amount equal to 3.5 percent of the price of the home at the minimum — and this is for an FHA loan to qualify. Some loan programs even allow the down payment and/or closing costs to be paid for through a monetary gift from a relative, such as the FHA program.

The decision of whether or not to give you a loan is not dependent on any one of the above factors alone, but on all three. For instance, if you have excellent credit, but no verifiable income, no one will give you an A type loan on a new home (and perhaps no loan period, in today’s market). You may still be able to get a loan with less than A credit, but the application process will be harder and the interest rate and points will probably be higher. More at Brokers vs. Bankers.

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