Deciding on the best bathroom light fixtures or the sturdiest kitchen countertops probably seems like a key part of buying a home. But, really, that’s just the fun part. For some, qualifying for a home loan in the first place is the more difficult task.
Qualifying for a home loan generally depends on your ability to meet two criteria. The first is, quite sensibly, that you are in a financial position to be able to pay your home loan back to the lender. Lenders don’t always make this process easy; they take a hard look at your records in order to determine your ability to pay. The first thing they look at? Your employment.
Many home loan applicants believe that having good employment will lead to their approval for a loan; generally, though, qualifying is more complex than that. Lenders will also look at the length of time you’ve been with your current employer (or at least in your current field). Two years with a particular company or working in a particular field will be considered steady employment, and will help you to present yourself as a good risk.
After looking into your employment history, your home loan lender will then look at how your income compares to your debts after your new mortgage payment has been added in. Paying off as much debt as possible before applying for a home loan is a good idea. Why is this? Because in order to qualify for a home loan, the lender has to feel that you will have enough money to make your all of your debt payments comfortably. If the lender you work with feels that you have too many debts when compared to your income, he or she may decide that it would be better to offer you a smaller loan or a higher interest rate. Or may even decide not to approve your application at all.
Your lender has evaluated your debt and income comparison, and feels that you can make payments comfortably? Next, they’ll take a look at the next standard that successful applicants must live up to: your “willingness to pay.” To decide whether they believe you’ll be willing to pay your home loan in future, they look at your payment history by pulling your credit report. If you have consistently been on time in paying your debts in the past, it will look good on your application for a home loan.
Another important aspect a lender will keep in mind when deciding whether or not to approve you for a home loan? What your plans are for the home you wish to purchase. If you plan to make the home your primary residence, for example, the lender has good reason to think that you’ll be more than willing to repay your home loan.
April 9th, 2009 at 12:43 am
When the prime interest rate goes up or down, your home mortgage’s interest rate goes up or down too. This lets you get the maximum benefit from periods of low interest, but also means that if the prime interest rate rises sharply, your interest rate and monthly payments will rise with it. Because you, not the bank, absorb the risk of rising or falling prime interest rates, banks set the introductory interest for adjustable rate mortgage loans lower than those for fixed rate mortgages.
The interest rate on a fixed rate home mortgage is set, or fixed, for the term of the loan. This cushions you from the shock of skyrocketing interest rates, but also prevents you from taking advantage of falling interest rates.
November 9th, 2009 at 4:37 pm
* Amortizing vs. non amortizing loans: Amortizing mortgages are designed with payment schedules that cover both the interest and part of the principal, and fully pay off the mortgage over the term of the loan. By contrast, non amortizing loan payments cover only the interest, and may not cover the entirety of the accrued interest. Toward or at the end of the term of a non amortizing loan, the size of the monthly payments jumps dramatically, and the homeowner pays off the rest of the loan at an accelerated pace. Amortizing loans are the best choice for people who plan to keep their homes for a long time and want a home mortgage with no surprises.