Mortgage has certainly made home buying convenient for many people. Imagine, you can purchase a house and live on it, without having to pay in full. All you have to do is to pay some of the upfront expenses during the closing day and the rest would be paid back at a staggered amount and in a regular basis. This has generally made home purchase easy. Despite the complex application process for mortgage, it has still played a huge role in helping people actualize their dreams of becoming a homeowner.
But as mentioned, the application process is full of intricacies. You have to understand that financial institutions want to make sure they are earning from your borrowing. Hence, they have to take certain measure to be assured of good paying borrowers. This part is the underwriting process.
However, if you have everything that the lenders need, it is easy to pass their underwriting process. In a short span of time, you will be getting the mortgage, buy the house you want and move in. All you have to do is to understand the mortgage approval guidelines that lenders has set up:
You should have good credit performance. In the world of financing, credit has always played a major role in identifying the kind of borrower you are. Almost all of the lenders would retrieve your credit history to check how well you were in paying back your previous debts. This is where they will base your credit scores. If the score falls on an acceptable level or even better, lenders will most likely accept your loans and grant you with great rates.
Having a stable employment and good income would pave way for your approval. Lenders would prefer to allow borrowing for people who have a bigger margin. This is because it means the borrower could still afford to incur an additional debt, on top of the existing ones. Hence, a good paying job and a stable income would pave for this. To know your margins, the lender would usually calculate all sorts of ratio. One of which they will use is the loan to value ratio and debt to income ratio.
Lenders would also consider down payments. The bigger you pay the more equity you get. For lenders, more equity would generally make your transaction less risky. Hence, you should either commit to make a bigger down payment. Generally, 20 percent of the purchase value is required. But you can give more.
Lenders would also look into the source of your down payment. They want to make sure that your sources of funds are legitimate. Hence, know their requirement to ascertain the legitimacy of your fund source.
Property usage can also affect the lender's decision in approval. They would want to be assured that the intention of the borrower to pay is not solely dependent on its purpose. For example, a house bought as a dwelling would be more secured for the lender as they know a person would do anything they can to make sure to keep their homes until the mortgage is burned. As opposed to using the property for investment, like for rental, the payment of the mortgage is dependent on the income you get from the business. If the place was depressed and the area has high vacancy rate, this could then be alarming to the lender. Not unless if the area is hot on rentals, definitely, the lenders would not mind at all. It all depends on the situation. There will be other factors to consider but remember, lenders would look at all angles, and this is just one of it.
Your net worth is also important. A simple mathematical equation could lead to the determination of your net worth that is assets minus liability. Otherwise known as the owner's equity, this could help lenders identify your credibility in terms of loaning, as well as help determine their security for allowing you to borrow.
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