Home Loan Qualification
Posted by admin on Jul 17, 2009
Prior to accepting an application for a home loan, lenders will qualify you for the mortgage. If you are a first time buyer or have not applied for a home loan in several years, you may be asking exactly what qualification means. Qualification is the process lenders use to decide whether, and how much, to lend to an applicant. You can improve your chances of qualifying for the home loan you need by learning as much as possible about the process.
WHAT DO LENDERS WANT TO SEE?
Lenders look for evidence that you will be likely and able to repay your home loan. A consistent, dependable source of income is important. Have you worked for the same employer for two years or more? If your current employment has been less than two years, a lender will look for other signs of stability, such as years with a previous employer or in the same field. What if you have had a recent change in employment? Can you demonstrate your reasons were responsible and that the employment is stable? Expect that the lender will contact your employer to confirm your history. Steady employment indicates both personal responsibility and a reliable source of income.
You will also need to provide proof of the total household income you want held accountable against the loan, as well as your outstanding debt and monthly expenses. The comparison of your debt to income will be evaluated to determine your ability to meet your existing expenses and your projected home loan payment.
ARE YOU A GOOD RISK?
Before approving you, the lender will evaluate your credit report to determine the likeliness that you will make regular, timely mortgage payments. A history of timely, consistent payments is very important to potential lenders. They also check that you use credit responsibly, without regularly approaching the maximum levels available.
STEPS YOU CAN TAKE BEFORE YOU APPLY
The decision to buy a home is one that takes some time. Try to maintain your time in job for a minimum of two years before applying for home loan qualification. Know what is in your credit reports from the three major credit bureaus. If any information is incorrect, write to the affected credit bureau to request correction or removal of errors. Reduce your level of debt as much as you can before attempting to qualify for a home loan. The more of these steps you take, the greater will be your chances of qualifying for all the money required for your home loan.
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The interest rate would shoot up after the grace period, but if you timed the sale of your house to fall before the end of the grace period, you would not need to pay the higher rate.
To decide whether now is a good time for mortgage refinancing, use a mortgage calculator to find the break even point on your property. This is the date on which the savings you get from lowering your interest rate equal the fees you must pay to refinance. If you plan to still own your house on the break even date, then it is a good idea to refinance. If you plan to have already sold the house on the break even date, or the break even date is so close to your planned date of sale that the savings are negligible, then refinancing is not a wise idea.
The lender also will review your credit report and credit score, as well as request a title report on the house to check if there is a second mortgage or a lien on the property. A refinance will have similar paperwork to fill out as you did when you received the original mortgage on the house. Your original mortgage (and any additional ones on the property) will be paid off by the refinance. You will have to pay appraisal fees, documentation preparation fees, title documentation fees, lawyer fees, lender fees and points (if applicable) like you did the first time you obtained a mortgage for the home.
A good number of mortgage holders who have currently decided to refinance, are doing it because the rates are so much better now than when they obtained their current home loans.
Their gamble may pay off, or the rates may creep back up. One of the risks for homeowners who are in areas hit with declining prices is that the longer they wait, the more the value of their home (and, consequently, their equity) will decrease. Those who are looking into home mortgage refinancing now with the low rates should make sure the benefits outweigh the costs for their particular situation before jumping in. Knowing all the costs of the refinancing is essential. Many people simply look at the savings differential between their interest rate and the new lower rate and forget to consider the actual costs of refinancing.
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Helpful information.
Selling your home within a few years after you refinance your mortgage does not make much financial sense.
You can take a few approaches when considering whether to refinance your mortgage. If you have more than one mortgage on your property, you can refinance with a mortgage large enough to pay off both, leaving you with one single mortgage loan to repay. You could also refinance your mortgage by extending its terms, stretching out repayment time but lowering your monthly payment. The one negative to this is that you will pay more interest in the long run.