Mortgage Glossary
Compensating Factors
Defined by Onias Derilus, Mortgage Capital · NMLS# 1859012 · Florida licensed mortgage broker
Compensating factors are positive aspects of a borrower's profile that offset weaknesses like a high DTI or lower credit score.
What Compensating Factors means
Strong reserves, a large down payment, low payment shock, or long job stability can justify approval beyond standard limits, especially in manual underwriting.
Florida example
A Florida borrower with a 50% DTI gets approved because compensating factors, twelve months of reserves and a 760 score, reassure the underwriter that the higher ratio is manageable.
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