Okay, you've strengthened your borrower profile (income, debts, credit) and still your borrowing power's too weak to finance the property you want. Maybe you should bring in a cosigner, co-borrower, or co-owner. Here are some examples of how these techniques have helped first-time homebuyers but they can also be adapted for use by investors.

To stretch their buying power, more than a few borrowers stretch the truth. "Everybody fibs a little," they say. "Besides how's the lender going to find out?" Verifications, that's how. Even stated income or stated asset loans require that you state the truth. (If you prefer to avoid stating the truth, use a NINA (no stated income, no stated assets) product.)³

In this age of automated underwriting, some loan reps forget that the qualifying guidelines within their software programs do not rule absolutely. If you fail some "standard" loan rule, you can still gain mortgage approval if you stress your compensating factors.

Can you easily manage your monthly loan payments? Or do you often run out of money before you run out of month? From the following list, total your current required minimum monthly payments.

We previously assumed that your qualifying income totaled $7,000 a month. That was simple. In the real world, lenders qualify you according to a variety of actual and potential income sources such as:

For many (but not all) loans, lenders judge your borrowing power through their use of two qualifying ratios: the housing cost (front) ratio, and the total debt (back) ratio. Both the housing cost ratio and the total debt ratio give lenders a way to measure whether your income looks like it's large enough to cover your mortgage payments, monthly debts, and other living expenses (see examples below).
Run-of-the-mill loan reps will merely plug your financial data into their AU program. Savvy loan reps will do a "first review" and then, if desirable, suggest ways to improve your financial profile. The average loan rep approves or rejects. The savvy loan rep says, "Here's what you can do to make your ratios look better."

Some loan advisors claim that the big national mortgage companies, Fannie Mae and Freddie Mac, set underwriting standards for nearly all mortgage loans. Fannie and Freddie actually account for less than 40 percent of the residential real estate financing issued throughout the United States. A big number, yes, but hardly all-powerful. Moreover, Fannie and Freddie do not perfectly mirror each other. Both Fannie and Freddie publish underwriting guidelines, not edicts.¹ Lenders who sell loans to Fannie and Freddie remain free to apply a reasonable degree of flexibility.