A mortgage is not a small thing. It is a long-term commitment that will usually stay with you for 15 to 30 years of your life. Because of this, there are many important things to consider and plan for, and there are many factors that will determine whether or not you can get a mortgage.
These factors can be divided into two. The first is what you need to consider before you accept a mortgage, and the second is what the lender must consider about you before approving your mortgage.
Let’s consider you first.
Before you can choose the right mortgage program for you, you must review your current financial situation and project whether your housing needs will change in the future while you are still tied to a mortgage. You can ask yourself these questions to help you with this
– How long do you think you plan to stay in your home?
– Will your financial income increase over time so that you will be able to pay more on your mortgage?
– What major expenses do you think you may have in the future that may affect your ability to pay your monthly interest? College tuition, investing in a small business plan, etc. are examples of these.
The next step is to assess the level of risk you are ready and willing to take. Remember that a mortgage takes a long time to complete and you are obligated to pay it carefully and consistently over that time. Decide what mortgage rate you think you are comfortable with. Adjustable rates are risky because interest rates change more and more, which is why it’s best to predict whether your income will increase over time if you take this approach. A fixed rate is always safer because it is stable.
The third step is to determine the term you want to have the loan for. Most terms are 15, 20 and 30 years. Usually, a shorter term means a higher monthly payment. This is good for those with above average and stable incomes. However, most people with average incomes choose long-term loans because, in addition to having smaller monthly bills to meet their budget, such a mortgage plan gives the lender assurance.
The final step is to evaluate the closing costs of the mortgage and the lowest interest rate you can get.
Now, let’s consider the factors that may affect a lender’s approval of your mortgage. There are 10 of these factors, and they are as follows.
- 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 statistically, 40% of credit reports contain errors. These errors can show up in your mortgage, which will result in you getting a higher interest rate or not getting a mortgage at all.
- 2. credit cards. Lenders become suspicious when you apply for a new credit card or close an existing account when you apply for a mortgage.
- 3. Outstanding credit. This can have a big impact on your mortgage approval. All credit should be paid off before applying for a loan.
- 4. Income. A stable income will give you extra points for getting a mortgage, so it is recommended that you avoid changing jobs or quitting your job before applying for a mortgage.
- 5. Available funds. Make sure you do not make a purchase that could deplete your available funds before buying a home. In addition to the down payment, you will want to consider other costs, such as closing costs.
- 6. down payment A larger down payment will ensure that you get a lower interest rate on your mortgage.
- 7. Interest rate. This determines how much you will pay each month. It is best to consider “lock-in” fees to ensure that you still get an advantage when interest rates rise in the market. Remember, interest rates are constantly changing.
- 8. Price range. Determine the price of your home based on an assessment of your current financial situation and by calculating your debt-to-income ratio. Lenders will not approve a mortgage for a price you cannot meet.
- 9. Lenders. Get to know your lender and ask for statistics about those mortgage applications they have denied and approved. According to financial experts, if a lender denies 20% of mortgage applications, this is not a good sign.
- 10. your honesty. Be honest in filling out all the information that the lender asks you to provide in order to increase your loan approval. Be aware that providing inaccurate information may backfire and no lender will want to work with you.