A mortgage loan is far from a small thing. It is a long term commitment that usually stays with you 15 to 30 years of your life.
Because of this, important things have to be planned for and there are many factors will decide whether you will get a mortgage loan or not.
The first one is what you need to think about before getting a mortgage loan. The second would be the factors about you that lenders consider before approving your mortgage loan.
Let’s look at what you need to think about before getting a mortgage loan.
Before you can choose the right mortgage plan for you, you have to review your present financial situation and think about if your housing needs might change in the future.
You can ask yourself these questions to help you with this:-
- How long do you think do you plan to stay in your house?
- Are there expectations for you financial income to increase over time which could allow you to pay more for your mortgage loan?
- What do you think are the significant expenses you might make in the future that could affect your capability of paying your monthly mortgage payment?
College tuition fees, investing in small business plans, etc are examples of these.
The next step is to assess the level of risk you are ready and comfortable in taking. Decide on what mortgage rate you think you can work with. Adjustable rates are risky since interest rates change which is why it is best to project your income if it can increase over time. Fixed rate will always be safer because it is stable.
The third step is to determine the length of period you want to have the loan. Most terms are 15, 20 and 30 years. Usually, a shorter term means higher monthly payments.
This is good for people whose incomes are higher than average and are stable. But, most average income people go for long term periods because they can fit it in their budgets.
The last step is to assess the closing costs of a mortgage loan and the best interest rate that you can get.
Now, let’s look at the factors that might affect the approval of your mortgage loan from lenders.
1. Credit report. The three major credit bureaus: Equifax, TransUnion and Experian provide your credit report. It is important to review these for errors because according to statistics, errors are present in 40 percent of credit reports. These errors are a big factor in your mortgage loan and can lead to higher interest rates or not getting the mortgage loan at all.
2. Credit Cards. Lenders get nervous when you apply for new credit cards or close current accounts when you are applying for loan mortgage.
3. Outstanding Credit. This figures much in the approval of your mortgage loan. Pay off as much credit debt as you can before applying for the mortgage loan.
4. Income. A steady income will give you a lot of points in getting a mortgage loan so it is recommended that you should avoid changing jobs or quitting your job before applying for a mortgage loan.
5. Available funds. Make sure that you do not make purchases that could consume your available funds before buying a home. Aside from a down payment, you have to consider other expenses such as closing costs.
6. Down payment. A bigger down payment assures you of the best interest rates on the mortgage loan.
7. Interest rate. This determines how much your monthly mortgage payment will be. It is best to consider “lock-in” fees to guarantee yourself that you still get the advantage should interests rise in the market. Remember that interest rates continuously change.
8.Price Range. From your current financial assessment of your situation and by figuring out your debt-to-income ratio, determine the price of your home. A lender will not approve a mortgage loan application if it shows you have too much debt.