Know How To Qualify And Get A Mortgage
If you have the desire of getting a home of your own but it is lack of finance which is stopping you, here is an easy solution to let your dream come true. A mortgage loan can help you and free you from the hassle of financing your home.
What is mortgage?
Mortgage is a legal process by which a borrower can take a loan for buying his residential property and the same property is kept as a security for repayment of debt. The transaction generally involves two parties: a) the Creditor or Mortgagee ; b) the Debtor or Mortgagor
Are you eligible for a mortgage?
Banks and lenders use credit scores as a major factor to decide whether you will be approved for a mortgage. The higher the score, the lower will be the interest rate on your loan. The credit score is determined by factors like:
- Past payment history
- Amount of existing Debt
- Length of credit established
- New credit enquiries
- Types of credit established
The Debt-to-Income Ratio and the Housing Ratio which give an estimated account of your monthly expenses in terms of debts and housing costs are considered for your loan approval. Your financial strength in terms of your monthly gross income and the amount of cash you pay for down payment is also considered at the time of approving your loan.
How much can you afford?
The loan amount depends on the value of your home and the down payment. The interest rate on your loan depends on your credit score, discount points and down payment. The higher the score along with high discount point and down payment, the lower is the rate offered. You can also avail a lower interest rate by paying a part of loan amount as prepaid interest or points.
What are the possible Loan Terms?
The loan term in a mortgage varies from a short term of 5 – 7 years to longer periods of 30 – 40 years.
For a Fixed Rate Mortgage the loan term may be as long as 30 years and the interest rate remains the same throughout but for an Adjustable Rate Mortgage, the term generally varies from 3 – 10 years. This kind of rate is mostly hybrid where an initial fixed period is followed by an adjustable period. Besides there is the Balloon Mortgage that has a loan term of 5 – 7 years after which the balance has to be paid off entirely.
How can you get a Mortgage?
The loan application form that is submitted goes through a process of review before the lender gives his approval. The date of closing is decided which involves submission of legal documents like Truth in Lending Disclosure, the Good Faith Estimate, the Credit Report Disclosure and many more.
What Documents are required?
- Latest 2 years tax returns
- Latest 2 months bank statement, Verification of Deposit (VOD) or other acceptable asset reserves.
- CPA letter or business license if self-employed stating 2 years employment in the same field.
- Electronic Appraisal Report
- Preliminary Title Report
* Hazard Insurance
How much do you need to pay initially?
Generally it amounts to 3% – 5% of the loan amount but it may vary from one lender to another. For example, FHA Qualification requires only 3% as a down payment on your loan amount. The following are required:-
- Loan origination fee
- Discount Points
- Appraisal fee
- Credit Report fee
- Title fee
- Loan Processing Fee
You will also have to deposit property taxes and insurance premiums into an Escrow Account set up by the lender for this purpose. The rest of the taxes and insurances are paid along with the monthly mortgage payments.
How much do you need to pay monthly?
Your monthly payment includes the following:-
- Payment towards Loan Principal
- The Monthly Interest
- Escrow Payments including property taxes and insurances
- PMI (Private Mortgage Insurance) Premium if the down payment is less than 20% of the property value.
While repaying the mortgage the title of ownership of the property still remains with you. But if you fail to pay off the outstanding balance, the lender may take away your home.
While you are applying for a loan, you may come across frauds and scams. In order to safeguard yourself from being a loan fraud victim, collect proper information about the lender and the loan. This will help you avoid paying high interest rates or hidden costs. Some borrowers switch to the foreign exchange market in order to cut monthly payments, which is a different story altogether. Nevertheless, look for the best loan package that suits you and only then apply for it. Cooperate with your lender to make the process smooth and fast from your end.
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