Learning the Basics of Mortgage Loans and How to Make Successful Applications

A significant portion of all mortgage loan requests are unsuccessful due to a failure by the applicants to meet the requirements. A lot of people are uninformed on how to go about the application process. Usually, your lender may request for a few bank statements and any other documents that may assist them in assessing your financial state.

Selecting the best lender

As a borrower, you want to select a lender whose terms best suits you. As such, you may be required to conduct some back research to identify a lender that offers the best mortgage rates in Utah. That should be accompanied by a review of the allowed repayment period. Usually, you want to stretch the repayment period as much as possible in a bid to water down its effects on your finances. Different lenders offer different interest rates and repayment periods. They also accept different amounts of down payments. Some lenders may allow you to make an initial down payment of as low as 10% of the value of the home, whereas others may require 20% or more. It is, therefore, up to a borrower to compare the terms and conditions of various lenders before deciding to proceed with the agreement.

Calculating your debt to income ratio

Debt to income (DTI) ratio is an essential metric upon which lenders base their decision to grant you a mortgage loan or not. To calculate DTI ratio, one has to identify all their monthly payable debts and divide them by their salary within the same period. For example, consider that a borrower has an auto loan that they repay at a rate of $800 a month, a debit card charge of $700, a current mortgage loan of $2500, and a separate personal loan of $1000. At the end of the month, they are expected to pay a total of $5000 in debts. Using the debt to income ratio formula, it is expected that they should not be earning less than $12,500 every month. Otherwise, they may be termed as unfit for the mortgage loan.

man showing paper with denied loan applicationCredit barriers

The consequence of lacking a credit history is that it may bar your ability to secure a mortgage loan. Currently, it has become almost a mission impossible to get a mortgage loan approved without the backing of a satisfactory credit score. This has forced many people to utilize debit cards even though they would otherwise opt against it. Some people have also ended up purchasing items on credit in a bid to create some credit history. Other than that, it is likely that your potential lender may require your bank statements dating back to at least two to three months. Therefore, always ensure that you have ready access to your financial statements and any other documents that may be relevant to getting your mortgage request approved.

With the current dynamism in the real estate market, mortgage lenders have become more critical of the applicants’ abilities to repay their loans. This has also put pressure on the borrowers to ensure that their credit scores are high enough to warrant successful loan applications.

Spread the love