New Home Purchase – Qualifying Criteria for a Mortgage Loan
Before starting to look for a mortgage loan on a new home, it is advisable for one to learn about some the most important information and criteria that financial institutions will check out before approving a loan, information which will also be used by the lender for setting the terms and rules of the agreement contract, such as interest rate, in case the loan is approved.
The first information that a lender will look at is the client’s credit history or repayment history, which can be used to establish the client’s financial potential for paying back a future loan. The lender will primarily check out the applications from borrowers that have good credit scores of 600 or more, but also verify the borrower’s income and credits or if he has, or had, any late payments on mortgages, rent or credit card bills. Information on a borrower’s credit history can easily be acquired from a credit bureau such as Equifax, Experian or TransUnion.
The lender will also take into account the borrower’s debt-to-income ratio which can determine the approval of the loan and also establish the interest rate, in case the lender validates the loan. Borrowers with a 28/36 ratio have the greatest chance of obtaining the loan and are considered the best candidates for a mortgage loan. In the example above, 28 represents the front-end ratio, which is the percentage of the borrower’s gross income that would go to the PITI (principal, interest, taxes and insurance) expenses. The other number, 36, represents the back-end ratio of the borrower which is the percentage of his income that would go to the PITI expenses + all other debts that the client might have such as personal loans , car loans or credit card debt.
Also, the client’s employment record will be verified, and the clients that are found satisfactory have a greater chance of obtaining the loan. A satisfactory record should imply that the client has a steady income and has been working in the same place for at least two years.
Last but not least, it is good to be aware of the fact that the interest rates on the loan may differ because of the company that makes the insurance, which can be a federal or a private insurance company.
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