What Do Mortgage Lenders Look at When Considering Your Home Loan Application?
You've waited a long time to be able to afford your own place.
It wasn't easy saving up that down payment while all of your friends were spending their money having a good time.
You kept saying to yourself, "I'll be better off in the long run.
" While you're accumulating that next egg there are some things you should be doing to prepare yourself for that day when you can actually think about purchasing that first home.
Now is the time to start reviewing your credit and begin to anticipate the kinds of questions you will be asked by the mortgage brokers once the time comes.
So what are the lenders looking for? Well they are obviously going to be interested in your employment history.
They want to loan money to people that have steady jobs and are likely to be able to keep them during the life of the loan.
To help them establish your employment history, they will want to review your current job and see that you have had that job for at least two years.
Once they are satisfied with the longevity of your position, they will begin to look at your ability to make the mortgage payments.
The bank will calculate your mortgage quotient By adding together your proposed mortgage payment, the monthly amount you will pay for property taxes, together with your monthly insurance requirements; and then divide by your gross monthly income.
If the result is greater than.
33 then you will probably not qualify for your loan.
They also look at a broad debt ratio that adds in all of the other loan and credit card payments you may have.
The bank will feel you are a bad risk if the total amount you pay for all of your loans, including your monthly mortgage payments, is more than 43% of your total gross income.
If your mortgage quotient is too high, or you have too many other debts, you will have to regroup a little and reassess your situation.
Think about reducing your debt where ever you can and maybe consider some less expensive properties.
Don't forget to review your credit reports, you know the bank will! There are three main credit reports that the banks use to help them evaluate the credit worthiness of their potential clients.
You should get a copy of them all and review them for discrepancies or errors.
Although you may be able to explain your way out of some of the irregularities on these reports, it is far better to try to resolve these issues before you ever make that loan application.
One thing that often surprises potential homeowners is the valuation of the property they are attempting to buy.
As a normal part of the escrow process, the bank will hire a company to do an appraisal of the property you are attempting to buy.
This process documents all of the attributes of the home and compares them, apples to apples, with similar properties, hopefully within the same area.
If this appraisal comes in too low the bank will either disapprove your loan, or require a larger down payment from you.
This can be a huge disappointment to the buyer as they have already began the mental transfer from renter to home owner and now they have to stop and start all over.
Your Realtor should be able to help you avoid this by doing his own valuation before you even submit you application to the banks.
Preparation is everything when applying for a home loan.
If you're smart, you will begin the process long before you are actually ready to buy your first home.
By understanding the income requirements, credit history impacts and a little bit about the process of obtaining a home loan you can avoid a lot of wasted time and disappointment.
It wasn't easy saving up that down payment while all of your friends were spending their money having a good time.
You kept saying to yourself, "I'll be better off in the long run.
" While you're accumulating that next egg there are some things you should be doing to prepare yourself for that day when you can actually think about purchasing that first home.
Now is the time to start reviewing your credit and begin to anticipate the kinds of questions you will be asked by the mortgage brokers once the time comes.
So what are the lenders looking for? Well they are obviously going to be interested in your employment history.
They want to loan money to people that have steady jobs and are likely to be able to keep them during the life of the loan.
To help them establish your employment history, they will want to review your current job and see that you have had that job for at least two years.
Once they are satisfied with the longevity of your position, they will begin to look at your ability to make the mortgage payments.
The bank will calculate your mortgage quotient By adding together your proposed mortgage payment, the monthly amount you will pay for property taxes, together with your monthly insurance requirements; and then divide by your gross monthly income.
If the result is greater than.
33 then you will probably not qualify for your loan.
They also look at a broad debt ratio that adds in all of the other loan and credit card payments you may have.
The bank will feel you are a bad risk if the total amount you pay for all of your loans, including your monthly mortgage payments, is more than 43% of your total gross income.
If your mortgage quotient is too high, or you have too many other debts, you will have to regroup a little and reassess your situation.
Think about reducing your debt where ever you can and maybe consider some less expensive properties.
Don't forget to review your credit reports, you know the bank will! There are three main credit reports that the banks use to help them evaluate the credit worthiness of their potential clients.
You should get a copy of them all and review them for discrepancies or errors.
Although you may be able to explain your way out of some of the irregularities on these reports, it is far better to try to resolve these issues before you ever make that loan application.
One thing that often surprises potential homeowners is the valuation of the property they are attempting to buy.
As a normal part of the escrow process, the bank will hire a company to do an appraisal of the property you are attempting to buy.
This process documents all of the attributes of the home and compares them, apples to apples, with similar properties, hopefully within the same area.
If this appraisal comes in too low the bank will either disapprove your loan, or require a larger down payment from you.
This can be a huge disappointment to the buyer as they have already began the mental transfer from renter to home owner and now they have to stop and start all over.
Your Realtor should be able to help you avoid this by doing his own valuation before you even submit you application to the banks.
Preparation is everything when applying for a home loan.
If you're smart, you will begin the process long before you are actually ready to buy your first home.
By understanding the income requirements, credit history impacts and a little bit about the process of obtaining a home loan you can avoid a lot of wasted time and disappointment.