Mortgage Brokers increase competition and choice, driving lower interest rates

A Deloitte Access Economics report released 24 July, 2018 has found that mortgage brokers drive more competitive mortgage pricing, provide valuable services and greater choice for consumers.

The average mortgage broker has access to 34 different home loan lenders, and of these they use an average of 10 lenders to settle loans based on their customer’s choice, financial circumstances, needs and preferences.

Mortgage brokers drive competition in the lending market by providing access to a wide range of lenders – not just the major banks or their affiliates – helping to drive down interest rates for all Australian home buyers and investors.

The report, titled The Value of Mortgage Broking, which was commissioned by the Mortgage Broking Industry Group (MBIG), revealed that more than half of all home loans each year are originated by mortgage brokers – and this number continues to grow.

In addition, the market share of broker-originated loans for lenders who are not major banks or their affiliates has increased from 21.4 per cent to 27.9 per cent in just four years, highlighting the competition being driven by brokers.

Mortgage & Finance Association of Australia CEO, Mike Felton, said that the report provided important insight into the industry and the value it provides to everyday Australian homebuyers – particularly in helping to drive lower interest rates for all consumers, not only those who use a broker.

“The mortgage broker channel has made home loan financing cheaper for all Australians. While not only providing homebuyers with access to more residential lending options, mortgage brokers have contributed to a fall in net interest margins of more than three percentage points over the past 30 years,” Mr Felton said.

While the financial sector has been under significant scrutiny from regulators, mortgage brokers continue to be focused and dependent on building strong relationships with customers. These existing relationships, both directly and indirectly, make up 70 per cent of mortgage broker business, giving brokers a strong incentive to provide a competitive and valuable service.

Finance Brokers Association of Australia Executive Director, Peter White, said mortgage brokers were committed to providing exceptional customer service that included sound advice, lower search costs, greater competition and a diversity of choice.

“Customer satisfaction is critical for our industry. With so much referral and return business, brokers know they must do everything they can to help their customers secure finance that works for them. And, it’s clear that this is happening – more than 90 per cent of homebuyers are happy with their mortgage broker’s performance,” Mr White said.

“Beyond this dedication to serving their customers, mortgage brokers are experienced professionals. The report found the average broker has 13.8 years’ industry experience, which speaks to the quality of service and value that brokers provide their customers.”

The report also highlighted the significant value the channel provides for rural and regional Australians. With customers in rural and regional areas making up three in 10 mortgages originated by mortgage brokers, brokers provide access to a range of lenders in places where there may be few or no bank branches.

The Value of Mortgage Broking report was commissioned by MBIG to provide Australians with greater transparency into the role mortgage brokers play in the market, and the value they provide.

Below are some of the key highlights on the mortgage broker industry from the Deloitte report.

• The mortgage broker channel drives competition among lenders, which helps reduce interest rates.

• More than 90 per cent of mortgage broker customers are happy with the service they receive.

• Half of all home loans are originated by mortgage brokers, and this number continues to grow.

• Mortgage brokers are improving access to lenders that are not major banks or their affiliates.

• The four major banks account for just 50.7 per cent of broker-originated loans.

• An average mortgage broker has 13.8 years’ industry experience.

• Brokers that are sole traders earn an average income after costs and before tax of $86,417.

• The mortgage broking industry supports more than 27,000 full-time equivalent jobs.

• The mortgage broking industry contributes $2.9 billion to the Australian economy each year.

• Sixty-four per cent of brokers have education and training above their required qualifications.

The Mortgage Broking Industry Group (MBIG) comprises AFG, Astute Financial, Aussie, Choice Aggregration, Connective, FAST, Finance Brokers Association of Australia, Loan Market, Mortgage & Finance Association of Australia, Mortgage Choice, National Mortgage Brokers, PLAN Australia and Smartline.

The full Deloitte Access Economics report, The Value of Mortgage Broking, can be accessed at

by FBAA | Jul 24, 2018 | Media |

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Research reveals high satisfaction with mortgage brokers

New independent research has revealed most people who have sourced mortgages through brokers are satisfied with almost every aspect of the transaction.

The Finance Brokers Association of Australia (FBAA) commissioned the research project through finance industry researchers MyNextAdvice to gauge the level of satisfaction with clients who had settled on mortgages obtained through FBAA members.

The research took into account responses from 2049 clients who had settled loans, on a range of key performance indicators including broker-client relationship and ease of doing business.

FBAA executive director Peter White said the results indicate brokers are doing the right thing by their clients. “Overall confidence with the brokers relevant to this research was 95 per cent, and the same percentage said brokers were easy to do business with.”

In other findings:

  • 94 per cent were happy with their broker’s knowledge and competency.
  • 93 per cent agreed their broker had their clients interest at heart.
  • 93.6 per cent found their broker understood the borrowers needs, objectives and financial situation, and
  • 92.1 per cent were satisfied with the strength of the broker-client relationship.

The depth in the sentiment came from the many comments that clients volunteered on their survey forms. A high proportion said they had received excellent or fantastic service.

One respondent seemed typical in his remarks. “Highly recommended, excellent service, quick response, excellent savings and results. Highly recommended to friends and family who have said the same thing. A+”

Mr White said FBAA members were clearly looking after the individual needs of their clients. “While these results are good they are not perfect.

“There is always room to improve but when we see the issues in the royal commission we know the broker industry is best in breed, and the objections raised by the productivity commissioner are simply not based in fact or competent research.”

by FBAA | Sep 18, 2018 |

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Looking for financial solutions that work for your business?

PCL Money offers a personalised service and professional staff which ensures that you will you get the best financial deal possible for your business needs.

We take time to understand the nature of your operations and suggest packages that save you time & money.

Our comprehensive range of products & services means you can consolidate your finances with an institution that can meet your needs.

It doesn’t matter if you are buying or expanding a business, participating in management buy-outs, preparing shareholder exits, or on a path to merger an/or acquisition or undergoing inter-generational change,

STOP PRESS: PCL Money currently has a 3.79% 3 years fixed rate up to $500,000 and you can refinance business debt at this rate.

Call us today on 02 4226 9977. PCL Money is a market leading provider of financial services to businesses of all sizes.

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Should you use a bank or a finance broker?

The banking royal commission has drawn attention to some serious problems between the banks and their customers. Evidence to the Royal Commission has shown patterns of illegal behaviour by financial institutions.

Last month the corporate regulator ASIC revealed banks and others in the financial services sector would have to refund up to $850 million that had been taken from customers without any service being rendered.

This is in spite of the fact that, according to David R Gallagher a senior professor of finance at University of Wollongong,  Australia has genuine world-class financial regulators.

But Gallagher does point out that the financial advice industry has long had issues of educational standards and professional proficiency.

With the banks being accused of taking $850 million without providing these services it is no wonder that more and more people are turning to finance brokers to satisfy their requirements.

A finance broker negotiates with credit providers on your behalf to arrange loans. A mortgage broker is simply a finance broker that specialises in home loans.

There is a growing perception that a finance broker may give better advice than a bank because a finance broker such as PCL Money is not locked in with any one financial institution.

PCL Money have recently expanded their panel of lenders and are able to shop around for the most competitive finance deals on the market that can best suit their clients’ needs.

With rising house prices finance brokers are seen as possibly being a way of borrowing more as they have the potential to get a better interest rate than many of the big banks.

Research by Roy Morgan reveals that ‘Millennials’ (anyone born between 1976 and 1990) are more likely than any other age group to go through a finance broker rather than directly through a bank.

The research found that 42.5 per cent of Millennials with a mortgage five-years old or less had used a mortgage broker – a far higher proportion than any other age group.

One reason for this is that Millennials have grown up at a time when mortgage brokers were always there and so that they are seen as a very familiar way of acquiring a home loan.

37 per cent of people in the next generation bracket, ‘Generation X’ (anyone born between 1961 and 1995) that had obtained with mortgages had used a mortgage broker.

The figures are less for the older generations. Just over a quarter of Baby-Boomers (born between 1946-1960) had acquired their mortgage through a mortgage broker, while just over a fifth of those born before 1946 used a broker.

Older generations tended to be under the illusion that that if you deposit your money with a bank when the time comes to seek a mortgage the bank will be inclined to grant you a loan to reward your loyalty.

Whether you are after a home loan home loan, business finance or seeking to re-finance your existing loans at a better interest rate,  call PCL Money on 02 4226 9977  for a confidential discussion.



Please note that the above is general financial information only and is not intended as personal financial advice for which you should contact a licensed financial professional.


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Should you get a variable or fixed rate home loan?


When you take out a home loan, you normally choose between a fixed interest rate or variable interest rate.

With a fixed interest rate home loan your interest rate is locked in for a certain period. For example it could be over 5 years. This means that your loan repayments will remain the same over the 5 year term.

So fixing your home loan does make budgeting easier because you know exactly what you’re repayments are going to be. This helps you to plan and set financial goals.

Any increases in interest rates will not affect you. However, any interest rate decreases will not apply to you. You won’t benefit from a drop in interest rates if you are on a fixed rate.

Other considerations include that fact that additional loan repayments are often not allowed with fixed rate loans. A redraw facility may not be offered on a fixed rate loan.

A fixed rate may not be the best option if you are thinking about selling your home or want the freedom to switch home loans if you find a better deal from another lending provider.

With a variable rate home loan your interest rate will move with changes to market interest rates so the interest rate will likely rise or fall over the term of your loan.

This means that your repayments will vary as the rate changes.

Some of the considerations with a variable rate home loan include that fact that you can make extra repayments, often at no extra cost, which saves you interest and helps you to pay off your loan sooner.

A variable rate home loan may have features which suit you such as unlimited redraws on any additional repayments or the ability to save on interest by setting up an offset account.

Variable rate loans are usually easier and cheaper to switch loans to another lending provider if you find a better deal.

Budgeting is harder with a variable rate because loan repayments will increase if there is a rise in interest rates. So if you aren’t prepared for a rate rise you may have trouble keeping up with repayments.

In order to get the best information for your circumstances, it can pay you to have a talk to an experienced finance broker such as PCL Money who have been in the industry since 1987.

PCL Money sources loans from a variety of lenders which mean that they are not locked in with any one financial institution but can shop around for the best loan deals on the market for their clients.

With a finance broker such as PCL Money you do not pay any extra hidden commissions. They are often able to source more attractive loans for their clients than their existing bank can offer them.

PCL Money can often provide you with less expensive finance options than the big banks as well as the ability to source loans that have the features and flexibility that best suits your needs.

With over 30 years experience in the finance industry PCL Money can give you expert guidance in the best loan packages for your circumstances whether fixed or variable.

Ask PCL Money about the option to of having a part fixed and part variable interest loan. This is called a split loan and allows you to manage some of the risks of interest rate rises while still being able to make extra repayments.

There’s generally no limit to the way you can split a loan between variable and fixed. You can allocate the funds 50/50 or 20/80 – the decision is up to you.

Whatever loan facility you decide to take out, it needs to be competitive and to work for you.  PCL Money have expanded their panel of lenders and can now offer their clients a much bigger choice.

For 30 years PCL Money has been helping businesses and families achieve financial success. You will find that your needs are there most important consideration.

For friendly and professional service with expert guidance on the best loan deals that are currently available on the market contact PCL Money at or call us  02 4226 9977.



Please note that the above is general financial information only and is not intended as personal financial advice for which you should contact a licensed financial professional.

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Westpac has just announced that it will increase its variable mortgage rates.

It is the first of the big four banks to raise interest rates for all its variable home loans this year, although many smaller banks had already moved to higher rates to ‘offset higher costs’.

Scott Morrison the new prime minister says  people who are unhappy with their bank’s decision to raise mortgage rates should consider switching to another loan provider .

He encourages unhappy customers to vote with their feet, saying competition is important to a strong and accountable banking and finance system.

Money is a commodity. The money you get from one lending institution is the same as the money you get from another.

In theory, if your lender puts their prices up, customers should shop around to get a more competitive loan. The problem is, many people don’t.

Half of Australia’s banking customers still bank with their first-ever bank.  This is part of the reason why they control more than 80 per cent of the mortgage market.

According to the Sydney Morning Herald (2 August 2018 ) only one in three customers have thought about switching in the last two years despite saving an average of $90 a month on a home loan by shopping around.

If you have an existing mortgage or seeking to borrow money then it can be a bid advantage to use a finance broker such as PCL money

You do not pay any extra hidden commissions and will often be presented with a cheaper interest rate and more flexible loan options.

PCL Money sources loans from a variety of lenders and is able to offer their clients the best loan facilities and deals available on the market.

So with a finance broker such as PCL Money broker not only are there no extra hidden commissions but also they can often present you with a loan facility that is cheaper and better suits your needs.

This means that PCL Money can often obtain finance for their clients at a more competitive rate than what their existing bank will offer them and with more advantageous terms and conditions.

With interest rates also on the rise overseas many Australians are considering changing to fixed interest rate loans which means that they will be protected from interest rate rises in the immediate future.

PCL Money is one of the county’s most experienced finance brokers and have been helping Australian families and businesses with competitive loans products since 1987.

PCL Money can help you with commercial business loans, residential mortgages, vehicle leasing, equipment  finance and their expert knowledge of the industry often means that they can help clients who have had their loans applications rejected by the big banks.

For a confidential discussion about your lending  options and the best loan products that are on the market contact the friendly team at PCL Money on 02 4426 99 77 or visit the website at

Please note that the above is general financial information only and is not intended as personal financial advice for which you should contact a licensed financial professional.

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16 tips for property success


 Ask successful people what they’d wished they’d been told when they were younger.

That’s exactly what I did with these successful property professionals and here’s what they said.

Kate Forbes – National Director Metropole Property Strategists

Invest in yourself first

Your best investment by far will always be in yourself as what you can achieve elsewhere will always by bounded by what you have achieved within yourself.

Investing in yourself emotionally, physically, spiritually and financially will allow you to become the best version of yourself.

Dream Big

There’s lots of wisdom around with various takes on the same message- but it all comes back to “If you can’t dream it, you can’t achieve it” and the more work that you do on yourself and growing personally and professionally, the more you will be able to achieve in every area- including your financial investments.

I think it was Larry Page who said “Tackle big dreams, there’s no competition.”

Don’t wish it were easier, wish you were better

This famous quote from Jim Rohn says it all:

“Don’t wish it were easier, wish you were better. Don’t wish for less problems, wish for more skills. Don’t wish for less challenge, wish for more wisdom.”

Ahmad Imam Director Metropole Property Strategists Sydney

If you want something you’ve never had, you have to do something you’ve never done.

The biggest obstacle to success and happiness that most people face is fear.

Amazing things happen outside of our comfort zones and this requires us to do things that we may not have done and make us feel uncomfortable.

It does not matter how slowly you go as long as you do not stop.

Everyone has heard the story of the tortoise and the hare – spoiler alert…the tortoise wins.

This applies to all areas of our lives including exercise, relationships, career, money and investing.

Winston Churchill famously said: “Never give in, never give in, never, never, never, never-in nothing, great or small, large or petty – never give in except to convictions of honour and good sense. Never yield to force; never yield to the apparently overwhelming might of the enemy….”

Bryce Yardney – Department Head Metropole Projects

Choose who you surround yourself with wisely.

While we can’t choose our family, but we can choose the people we spend the most time with. We should choose them carefully because we become a reflection of these people.

If you surround yourself with positive people, then chances are you will become a positive person. If you surround yourself with negative people, then changes are you will become a negative person.

I once read: “Great minds discuss ideas, average minds discuss events, small minds discuss people.”

Try never to be the smartest person in the room – while it may be good for your ego, it’s not good for your growth. Instead invite smarter people in, or find a different room.

On a similar note, since you can’t be an expert in everything, so surround yourself with people that compliment your weaknesses.

Develop good habits.

“Show me your habits, I’ll show you your future”.

Our habits define who we are and are the best predictors of our success or failure, so we need to develop good ones.

Breaking bad ones and creating good ones is hard work but you will thank yourself in the long run.

Greg Hankinson – Director Metropole Constructions

Don’t focus on things you can’t control.

To do so is not only a waste of your time and effort but counterproductive. Spend your time wisely on things that get you closer to your goals.

Surround yourself with people that challenge you.

As motivational author, Jim Rohn said, “You’re the average of the 5 people you spend the most time with.”

While there is no scientific way to prove this hypothesis, my own personal experience confirms that to succeed and grow, you need to be around people who set the bar higher.

Life your life as if it’s your last and one day you’ll be right.

Steve Jobs has been quoted as saying:

“When I was 17, I read a quote that went something like: “If you live each day as if it was your last, someday you’ll most certainly be right.” It made an impression on me, and since then, for the past 33 years, I have looked in the mirror every morning and asked myself: “If today were the last day of my life, would I want to do what I am about to do today?

And whenever the answer has been “no” for too many days in a row, I know I need to change something.”

Brett Warren, Director Metropole Properties Brisbane

Success does not come from one big event or occurrence, it comes from a series of smaller things.

I always used to think I would be successful as a result of one big break or event.

I would get a promotion or win the lotto or flip a property and make a substantial amount of money.

But I’ve learned that success comes from a series of smaller events.

So take every opportunity you can to better yourself or your circumstances, change your habits to be more productive and work hard towards a long term goal that you are committed too.

Successful people have multiple streams of income.

In most cases your salary has a ceiling so whether you earn $50,000 per annum or $500,000 per annum your level of savings is capped.

You cannot save your way to wealth and success.

But by investing the income you save in high growth assets, diversifying your portfolio and adding multiple streams of income from property, shares and business you can fast track your wealth and are not solely reliant of your salary.

Ken Raiss – Director Metropole Wealth Advisory

Life is hard but you are smarter

Don’t kid yourself – life is hard, but you already knew that didn’t you?

There will always be more problems: economic and investment uncertainty, world tensions, uncertain work prospects, children etc, but remember you’ve survived 100% of all the problems life has hurled at you.

To make it easier to overcome these obstacles, surround yourself with the right people, get a mentor and a team of experts

And minimise the dangers by understanding risk and mitigating them as much as possible

Always learn how to improve at whatever you do

Ensure you’re the best version of yourself.

Keep challenging yourself, ask yourself what you still need to learn, how can I be a better role model, who do I still need to forgive.

And cultivate an attitude of gratitude – focus on what’s going well in your life, what you have and the person you’re becoming.

Rita Thomas – Senior Property Strategist Metropole

Prepare For The Unexpected

Every year there is at least one significant X-Factor an unknown that comes out of the blue to destroy the best laid plans

Goals are critical, but so is action

To help you achieve your goals break them down into daily actions.

A routine is very important because it empowers you.

List everything that you need to do and everything that everyone else wants you to do, then you can prioritize the things that are actually important, the things that will get you closer to your goals and make sure they are done.

From Michael Yardney – director of Metropole Property Strategists.

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The Illawarra Mercury , 8/3/2018, reports that the South Coast housing market has defied Sydney’s falling trend in housing values.

It quotes new data from Domain’s June Quarter 2018 House Price Report which indicates that house and unit prices on the South Coast are continuing to rise, despite predictions the market would drop.

The reports states that in the past year, median house prices in Kiama have jumped almost 15 per cent from $830,000 to $953,000.

Prices have continued to rise in the Shoalhaven also, with a median price increase of 8.6 per cent in the past year to June.

Prices in the Eurobodalla Shire are also increasing, with an 11.6 per cent price jump in the past 12 months.

The strength of the property market in the Illawarra underlines its strong potential for future growth.

It is an attractive area for investment which has the following advantages.

  • It is the closest regional city to Sydney
  • The international Port of Port Kembla
  • The high quality of living, affordability and the capacity for strong population growth.
  • The University of Wollongong which is currently ranked in the top 2% of universities worldwide
  • The South Coast is one of NSW’s most popular tourist destinations, with the region receiving 18% of visitors to regional NSW

Whether you are looking for an investment property or a family home the natural beauty of the region and excellent transport connectivity to Sydney means that the value of properties are likely to steadily increase.

For competitive finance options in the Illawarra speak to the team at PCL Money and Illawarra Home Loans – the region’s most experienced Finance Brokers. They are locally owned and independent which means that they are not beholden to any one financial institution or bank and are able to shop around for the best financial deals on offer.

PCL Money has been servicing the business and residential needs of the Illawarra since 1987 and their goal is to provide exceptional customer service coupled with an in-depth knowledge of available financial products.


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The Value of Mortgage Broking,


The Value of Mortgage Broking, a report by Deloitte Access Economics has just been released.

This report demonstrates the value that our industry brings to consumers, lenders and the Australian economy, by driving competition and delivering greater choice and valuable services to the Australians who need them most.

The Value of Mortgage Broking report helps all Australians to better understand the role and value that mortgage brokers bring to the Australian market – whether they are financial regulators or everyday home buyers.

Given the ongoing scrutiny on the industry during 2018, it is important to have an independent report that clearly outlines the importance of the broker channel.

To view the report, click here

The key findings of the report comprise:

• Mortgage brokers strengthen the entire Australian mortgage lending industry by fostering competition and therefore supporting all Australian home buyers and investors.
• The mortgage broker channel has contributed to a fall in lenders’ net interest margins of more than three percentage points over the past 30 years.
• More than 90 per cent of customers are happy with their mortgage broker’s performance.
• Mortgage brokers arrange more than half of all home loans each year, and this number continues to grow.
• Mortgage brokers, on average, have 13.8 years of industry experience.
• Mortgage brokers drive competition by improving access to lenders that are not major banks or their affiliates. The share for these lenders increased from 21.4 per cent in 2013 to 27.9 per cent in just four years.
• The average mortgage broker has access to 34 lenders and uses an average of 10 lenders on their panel, bringing more choice to Australian home buyers.
• Three in ten mortgages arranged by mortgage brokers are for customers in rural or regional areas, improving access to home lending for rural and regional Australians.
• The mortgage broking industry contributes $2.9 billion to the Australian economy each year, supporting more than 27,100 (full-time equivalent) jobs.
• Brokers that are sole traders earn an average income after costs and before tax of $86,417.
• Brokers depend on strong relationships – more than 70 per cent of mortgage brokers’ business is referred from existing customers.

These findings clearly demonstrates the value and service that finance brokers are delivering to their customers – a testament to the hard work and dedication of the broking industry across the country.


Mike Felton 

Chief Executive Officer
Mortgage & Finance Association of Australia (MFAA)


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Can I make up for bad credit with a high income and down payment?

bad credit home loans

What’s more important for a mortgage? Income or credit score?

It’s not uncommon to find a mortgage applicant with great income, but not a high credit score. Do applicants with high income and large down payments still need bad credit home loans?

  1. Mortgage underwriting is completed mainly by software
  2. The software evaluates income, credit and down payment to determine the loan’s risk
  3. The right combination of income and down payment can overcome bad credit — to a point.

Note that most programs do have minimum credit scores that must be met no matter what.


Why income is more important than it used to be

Income, as we know, is nice to have. No doubt people with financial success are right when they say “I’ve been poor, and I’ve been rich, and rich is better.”

Income matters to mortgage lenders in a big way. Since 2014, lenders must evaluate most borrowers using the federal Ability-to-Repay (ATR) standard. The rule says that lenders must be certain that borrowers have the financial strength to repay the debt.

The rule does not apply to such financing as an open-end credit plan, timeshare plan, reverse mortgage, or temporary loan.

“Under the rule,” says the Consumer Financial Protection Bureau, “Lenders must generally find out, consider, and document a borrower’s income, assets, employment, credit history and monthly expenses.”

Affordability calculation

Lenders want to know what you make, and also what you spend for accounts like credit cards, housing, car payments, and student debts. They then compare your recurring monthly debts with your gross monthly income, what they call the debt-to-income ratio or DTI.

If before taxes you earn $5,000 a month, and apply for a loan with a principal, interest, property taxes and homeowners insurance (PITI) of $1,000 a month, you’d spend 20 percent of your income on housing. Many (but not all) lenders don’t like to see this number exceed 28% to 32%.

Your DTI includes the proposed house payment, plus your other monthly accounts, but not normal living expenses like food or utilities.

So if, in addition to your proposed $1,000 PITI, you pay $500 a month for your car, $250 for credit cards and $250 for a student loan, your DTI is 40% ($2,000 / $5,000).

What’s too much debt?

So how much debt is too much? Different loan programs are okay with different DTI levels. For instance, FHA-insured mortgages generally limit DTI to 43%, but will go as high as 50% if you have certain “compensating factors.”

Those include buying an energy-efficient home, having very good credit scores, showing conservative use of credit, or having substantial savings balances.

If you have a gross monthly income of $6,000, FHA guidelines might allow $1,860 for housing costs (31%) and $2,580 for all monthly accounts including housing (43%). In effect, you can have $720 for such monthly costs as car loans, student debt, and credit card bills and still meet the DTI standard.

VA is a little different

With the VA, you can have a DTI up to 41 percent, and it doesn’t matter how much goes for housing and how much goes for other debts. If you have no other accounts, you might actually apply the whole 41 percent to a mortgage.

(The FHA now has a similar approach for thrifty borrowers: It will allow ratios of up to 40% for housing if you have no debts and solid credit.)

In addition, the VA allows another, more forgiving calculation called Residual Income. If you don’t qualify with the DTI ratio, lenders must also apply the Residual Income  standard to see if you meet that guideline.

Conforming DTI depends on credit and down payment

Conforming loans sold to Fannie Mae and Freddie Mac have maximum ratios that depend on your down payment and FICO score. The DTI limit generally ranges between 36% and 45%.

However, there are now programs like HomeReady and Home Possible, which can allow DTIs as high as 50%.


While it might seem enticing to get mortgage financing with a 50 percent debt-to-income ratio, borrowing with such a steep DTI can be risky in the event of a layoff, downsizing, or other loss of income.

What’s worse? Low income or credit score?

It might seem as if someone who can pass the DTI barriers will sail right through the mortgage application process. While the right DTI is a must, it’s not the whole game. Lenders also want borrowers to meet other standards, especially a solid credit history

The important point here is that income and credit are not the same thing. Income represents a borrower’s ability to repay, and that’s important. But if the borrower is not also willing to repay his or her debts as agreed, the income doesn’t matter

Lawyers and doctors can earn a lot of money, but some have lousy credit. How does this happen? They’re not using their money to pay bills.

From the lender’s perspective, income is good, and a lot of income is better. But borrowers who don’t pay their bills represent a lot of risk, regardless of how much they make. How do lenders determine your willingness to repay? They check your credit scores.

The table below shows the distribution of credit scores for approved loans, courtesy of Ellie Mae. You can see that most approvals are for applicants with FICOs 700 and up for non-government (conventional) loans, and 650 and up for FHA financing.

income and credit for mortgage

What’s a good credit score for a mortgage?

Imagine that Ms. Smith makes $600,000 a year and has a 550 credit score. The income is great, but that credit score is a huge red flag. Either Ms. Smith will not get financing or lenders will require a massive down payment and possibly a steep interest rate.


In general terms, FICO – the credit scoring company which dominates the industry – says scores rank like this:

  • 800+ – Excellent
  • 740 to 799 – Very Good
  • 670 to 739 – Good
  • 580 to 669 – Fair
  • 579 and below – Poor

Importantly, someone with excellent credit – 800 and above – presents about a 1 percent chance of paying late. Someone with a score of 579 or below has a 61% chance of delinquency.

If you’re a lender, it doesn’t take a lot of head scratching to figure this one out: Someone with a poor credit score is 60 times more likely to be delinquent than someone with strong credit.

What to do about a low credit score

There are several ways to overcome a low credit score when looking for a mortgage.

  • Look for mortgage programs which are open to those with low credit scores.
  • Make a larger down payment. FHA allows loan approvals for scores as low as 500 if you put at least 10% down, but only to 580 with 3.5% down. In general, the lower your credit score, the more you should put down.
  • Sit down with a financial planner paid  and work on your credit, savings and debts until you are financially healthy.

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by PETER MILLER author of The Common Sense Mortgage, is a real estate writer syndicated in more than ​50​ newspapers nationwide

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