d. Compensating Factors

Compensating factors may affect the loan decision.  These factors are especially important when reviewing loans which are marginal with respect to residual income or debt-to-income ratio.  They cannot be used to compensate for unsatisfactory credit. 

Valid compensating factors should represent unusual strengths rather than mere satisfaction of basic program requirements.  For example, the fact that an applicant has sufficient assets for closing purposes, or meets the residual income guideline, is not a compensating factor.

Valid compensating factors should logically be able to compensate (to some extent) for the identified weakness in the loan.  For example, significant liquid assets may compensate for a residual income shortfall whereas long-term employment would not.

Compensating factors include, but are not limited to the following:

·   Excellent credit history 

·   Conservative use of consumer credit

·   Minimal consumer debt

·   Long-term employment

·   Significant liquid assets

·   Sizable down payment

·   The existence of equity in refinancing loans

·   Little or no increase in shelter expense

·   Military benefits

·   Satisfactory homeownership experience

·   High residual income

·   Low debt-to-income ratio

·   Tax credits for child care, and

·   Tax benefits of home ownership.