Mortgage Loan Approval – What You Need
If you’re looking to buy a home, the most common option is to take out a mortgage loan. This is where you pay monthly instalments, much like you would if you were renting a property, with the difference being that eventually you will own the property outright.
However, there are certain criteria that you need to meet if you do wish to take out a mortgage loan – after all, with the amount being borrowed running into the hundreds of thousands, lenders need to make sure you are suitable for a loan, and not a bad risk. So what criteria do you normally need to make?
One of the key factors that any mortgage lender uses, whether it’s your own bank or an outside source, is your credit history. Since a mortgage loan involves a high payment on a regular monthly basis, lenders need to know that you’re not likely to default on payments.
The way they find this information out is by using one of the three major credit-scoring bureaus in the US – Equifax, Experian and Trans Union. These companies have access to all loans, payment schemes and finance deals you may have had in the past, or currently pay. They also look at your credit cards and how you pay the amount on these as well.
You are then given a credit score – a high rating for payments and loans that have been settled on time, and a lower score for late or defaulted payments. The higher your score, the better your credit rating, and the more likely you are to get the mortgage loan you need to buy your home.
As well as your credit score, another way lenders determine if you’re suitable for a mortgage loan is how much debt you have, compared to your income levels. The higher the debt you have, the less likely you are to be approved.
For example, if you add up all your outstanding debts, including loans, insurances, etc, and it’s close to what you make monthly, then lenders will take the view that you may struggle to meet your mortgage payment, and be less inclined to offer you one. A good ratio for debt-to-income is 28/36, so if you fall within this band, you should be able to get a mortgage loan without too much difficulty. You may still get one if you’re outside this band, but it could be with a much higher interest rate.
Current Financial Status
The third most-used method of criteria is your current standing financially. If you’re in a full-time job and you’ve been with that company for over 2 years, you’re viewed as a responsible person who doesn’t job-hop. Add to this the fact that you are receiving a steady income from that job, and you’re more likely to be approved for a mortgage loan application than if you were working part-time, or unemployed.
Overseas criteria vary
In many countries the value of the property is a key criterion for you getting a mortgage from the bank. An example of this is the HSBC Australia home loan process.