Evidence of ability and willingness to repay a loan when lacking traditional criteria. This may include consideration of nontraditional employment histories and the use of rent, utility, or medical payment histories.
borrower strengths that mitigate or compensate for a borrower's weakness (i.e.; length of employment, considerable cash reserves, etc.).
Positive factors that are considered by lenders to approve loans to otherwise marginal borrowers.
A term used by lenders in relation to examining a borrower's credit strengths and weaknesses. If a buyer is exceptionally strong in one area, such as cash reserves, he/she may be weaker in another area, such as less than perfect credit due to late payments. In this case, the cash reserves may compensate for the derogatory credit.
Positive characteristics of a borrower's credit, employment or savings history which may be used to offset high debt-to-income ratios in the underwriting process.
Positive characteristics about an applicant's credit, employment history, etc. that contribute to a loan being a sound risk or investment.
Any underwriting consideration that would justify the use of higher debt-to-income qualifying ratios. Examples are large downpayment, excellent credit history, or a demonstrated ability to accumulate savings.
Compensating factors are favorable factors that might outweigh the negative factors. For example, a borrower has high ratios, but he or she balances this with a good credit history and extra cash in a savings account.
The underwriters consider many variables in their analysis. No two borrowers have the same credit and income profiles andunderwriters use all of the information in the loan file to render a decision. Many times, borrowers fall outside the guidelines, but have strong compensating factors that reflect low credit risk. Some compensating factors are history of savings, long-term job stability, history of making monthly credit payments that equal or exceed the proposed payments, a substantial down payment or a large cash reserve after the close of escrow.
The term used by lenders for examining a borrower's credit strengths and weaknesses. If a borrower is exceptionally strong in one area, such as cash reserves, the borrower may be weaker in another area, such as late payments in the credit history. In this case, the cash reserves may compensate or make up for the derogatory credit.