Standing at the threshold of your dream home, excitement battles with a nagging worry: “Will I be granted a loan to purchase the house? The process gets quite obscured at certain times leaving the borrower to wonder what more mortgage brokers look for.
This blog is here to debunk the process and show you what home loan lenders look for. Being aware of these factors will be helpful once you apply for a loan to ensure you have made the right financial decision.
The Art of Risk Assessment: Why Lenders Scrutinize?
It is always good to think of home loan lenders as the protectors of a major financial asset. Their interest solely focuses on evaluating the risk factor that comes with extending a huge amount of money to you. They wish to ensure that they will be repaid in a regular and timely manner by you and/or your business. For this, they carefully assess several aspects of your financial state to estimate this risk.
The Pillars of Loan Approval: The Big Three
Three key areas take center stage when a lender evaluates your home loan application:
Employment and Income: Every time you apply for a loan, lenders need to be sure that you have a steady source of income and that the money that you will be receiving will enable you to meet the basic responsibilities that are required of you every month as a homeowner, for instance meeting the mortgage loan payment, property taxes, homeowner’s insurance and other expenses that might accompany owning a home. In addition, it is advisable to keep records of employment history and source of income that may have been conducted from time to time.
Credit Score and History: Credit score is your financial report card and thus provides a record of managing credit and debts. So, when you have a FICO credit score of 670 and above, that can be referred to as good since you can borrow money responsibly and be able to pay it back when due. On the other hand, a low credit score means that one is likely to pay higher interest charges on the loan or simply be denied an interest-based loan.
Debt-to-Income Ratio (DTI): This is arrived at by dividing your total monthly obligations (mortgages, auto loans, student loans, credit card payments) by total gross monthly income. Accordingly, a DTI below 50% is ideal and shows the ability to manage existing liabilities, and the ability to service a mortgage.
Building a Strong Application
Although the three mentioned above are all important, there is still more to the tale.
Here are additional factors that contribute to a strong loan application:
Down Payment: The cash that you intend to pay as a deposit determines the loan amount that you will need and the loan-to-value ratio. In most cases, making a bigger down payment is beneficial because it makes the risk for the provider of the loan smaller, and better interest rates are to be expected. It is possible to have a lower down payment although the additional costs or private mortgage insurance may apply.
Foreclosure History: Here, they indicated that your foreclosure history is a severe blow to the probability of qualifying for a mortgage. Nevertheless, it might be possible to find some of the solutions based on the time that has elapsed since the foreclosure.
Property Value: The mortgage firms will also analyze the value of the property that you wish to purchase to ensure that the lender provides money above the worth of the particular property.
Savings and Assets: Savings are an important aspect for any homeowner because they reflect how prepared you are for other financial hitches that may come your way when in the process of owning a home. Stocks and bonds for instance can also be included to show the overall liquidity of the investments as well as the financial strength of the candidate.
Loan Type: Some of the loans may have certain stipulations that may be required to be met when applying for the loan (for instance, FHA loan, VA loan, USDA loan). There are many types of loans so compare and try to find the one that can suit you.
The Path to Homeownership
It is empowering to know what lenders look at when buying a home. Therefore it is crucial to repay your debts on time, maintain a good credit score, and ensure that you are financially stable to meet the loan demands to secure a loan with good interest rates and terms. You should not rely on the information provided to you here; you need to speak with an experienced mortgage company willing to help you out with the details.
Don’t worry! We at Munshi.Biz will guide you through mortgages and real estate Investments. Get in touch with us to know more about it.
