Friday, September 7, 2012

Does Net Worth Affect Your Mortgage?

People often ask us if their net worth affects whether they will be approved for a mortgage.  The simple answer is NO.

Net worth is defined as a borrower's assets minus their liabilities.  In other words, their net worth is the value of the things they own (including money in the bank) minus the amount of money they owe.

As an example, if someone has $5,000 in the bank and owns a car worth $15,000, their assets are $20,000.  If they have $15,000 in credit card debt and owe $10,000 on a car loan, they have $25,000 in liabilities.  Assets ($20,000) minus liabilities ($25,000) gives them a net worth of -$5,000.  So they have a negative net worth of $5,000. 

Does a mortgage lender care that they owe more than they have in assets?  Nope - not at all. 

The only thing a lender cares about is whether a borrower makes enough money to pay the mortgage, and whether they have a history of paying their bills on time.  Net worth has nothing to do with income or paying bills, so no one should worry about their net worth when applying for a mortgage.  Having a positive net worth does not help, and having a negative net worth does not hurt.  Mortgage lenders just don't care.

  
Getting a loan approved is easy - if you know what to do.  The Mortgage Experts know what to do!!!

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By the way, don't forget to refinance your current mortgage.  Rates are very, very low right now.  Don't miss out!  Call us today to get the details for your particular situation.

2 comments:

confused in Minnesota said...

I just read your article and discovered, according to you, that having a negative net worth does not affect your ability to get a mortgage because lenders just don't care. I find this interesting as I was just turned down for an FHA loan because I have a negative net worth! I have student loans that I am making very low payments on, but according to the "rules" they have to take 1% of the total loan value and consider that as a payment I have to make each month! That puts me over their guidelines as what I will be able to repay. So, is there really a place someone with fairly good credit, little debt [other than student loans] that makes an OK living to get a home loan? I have yet to find it.

Chris and Debbie Thomas said...

You were denied the loan because your loan-to-value ratio was too high, not because your net worth was negative.

If you are making income-based payments on your student loans, then you should use a lender who sells their loans to Freddie Mac. Freddie Mac allows borrowers to use the income-based payments, which are typically much lower than regular payments. FHA does not allow that, nor does Fannie Mae.

Hope this helps!

Chris Thomas