How do I qualify for a mortgage loan?
All lenders use specific criteria to determine if you qualify for a loan and the amount for which you qualify. To determine whether or not a borrower can be approved for a loan, lenders look at the following information:
- Your credit history
- The value of the property securing the loan (your house)
- Your financial ability to repay the debt
Taken together, these three factors determine a potential borrower’s risk – that is, whether or not they will be able to pay back their loan. If the risk is high, the lender will be reluctant to make the loan. Depending on the degree of risk, a lender may choose to charge higher rates and/or fees, or decline to make the loan.
How do I find out my credit score and what does it mean?
Credit scoring is a statistical method that is used to assess the credit risk of a loan applicant. It considers information such as current debt level, length of credit history, types of credit, the number of past delinquencies, and the number of inquiries. A score rates the likelihood that a borrower will pay back a loan. It can range from 350 (high risk) to 850 (low risk).
Your mortgage consultant will obtain your credit score for you and provide information on ways to improve your score. Keep in mind that credit scores do not consider your income, savings or down payment amount. Your credit score takes into account both positive and negative information in your credit report. For instance, late payments will lower your score. But establishing or reestablishing a good track record of making payments on-time will raise your score.
Credit reporting agencies do not grant or deny credit. Their job is to collect information about you and your credit history from public records, creditors and other reliable sources. These agencies then make your credit history available to current creditors, prospective lenders and employers (as allowed by law).
The credit reporting agencies are:
Equifax
Po box 105873 atlanta, ga 30348
800-685-1111
Experian
Po box 2002 allen, tx 75013 consumer credit questions
888-experian (888-397-3742)
Transunion
Po box 2000 chester, pa 19022
(800) 888-4213
How does the current interest rate environment affect my ability to secure a mortgage loan?
A lower interest rate allows you to borrow more money than a high rate with the same monthly payment. Interest rates can fluctuate as you shop for a loan, so ask-lenders if they offer a rate “lock-in” which guarantees a specific interest rate for a certain period of time.
How will my loan rate be determined?
Rates vary primarily based on the type and purpose of the loan, your credit history and income, loan amount, value of the property, and the number of points you are willing to pay.
How much can I borrow?
To determine your loan amount, the first thing the lender will typically do is divide the monthly payment of your proposed loan by your gross monthly income. This provides your housing-to-income ratio.
If the resulting percentage falls within a certain range, the next step is to divide your total monthly debt by your gross monthly income. This provides your debt-to-income ratio. Again, if the ratio falls within prescribed limits, you qualify for the loan.
The limits within which your housing and debt ratios must fall are determined primarily by the size of the loan, the value of the property, and the ratio between the two (known as the loan-to-value ratio, or ltv). This loan-to-value ratio is one of the most important factors in determining a home loan.
How much of a down payment do I need?
There are mortgage options now available that only require a down payment of 5% or less of the purchase price. But the larger the down payment, the less you have to borrow, and the more equity you’ll have. Mortgages with less than a 20% down payment generally require a mortgage insurance policy to secure the loan. When considering the size of your down payment, consider that you’ll also need money for closing costs, moving expenses, and possibly repairs.
Have you experienced credit challenges?
If you’ve gone through financial difficulties in the past that you think might affect your application, the best way to understand your options is to work with your home mortgage consultant. Granny8 Mortgage provides a variety of loan options designed to help you get the financing you need now.
Learn more about moving beyond credit challenges toward a more secure financial future.
