Two Steps to Securing a Home Loan
04/12/09
Before purchasing a home, most prospective home buyers need to make sure they are eligible for a home loan. Understanding and being prepared for the home buying process, especially qualifying for a home loan, will make the experience much easier.
Two components that banks examine when deciding your eligibility for a loan are your financial means to repay the loan, as well as your ambition to pay it back.
Financial Means For Repayment of the Loan
Being able to pay off a home loan is the most important factor. First, a lender will check out your current employment and job history. This will help the lender determine how secure you are financially. Clues such as how long you have worked at one place, or the length of time you have been in one particular field are good gauges that you have a favorable financial situation and will be income secure in times to come.
Also, a bank or lender may look at your net income and see how much debt you have incurred previously. If you have outstanding debts, lenders must be sure that your income is enough to cover both the new home loan and the existing debts. If the lender determines that the existing debt (prior to the home loan) is too high, you may still qualify for a smaller home loan. So, if you have your heart set on a specific home and don't have additional down payment money to lower your loan amount, it is to your benefit to pay off as much debt as possible before applying for a home loan.
Agreement to Repay
Another factor necessary in securing a home loan is your compliance or eagerness to repay the loan. Lenders often determine how likely you are to pay back loans in a timely fashion by looking at your credit report. The purpose of a credit report is to inform lenders whether or not you have paid past debts fairly and on schedule. If you have always paid loan installments on time and in the sum requested, you will be a more attractive borrower.If you have paid loan payments in full and on time, you have a better chance of getting a loan from lenders. Another factor that will affect the decision of a lender is your intended purpose for the property. If you are using the home loan for a residency, it is different than if you are securing it for an investment property because homes are more likely to be paid off in full.
Don't be surprised if lenders will ask for a detailed financial history when deciding if you qualify or not. a W2 form, tax return, portfolios and credit reports could all be included, as well as additional items. If you are able to give the lender all of this financial data and they can verify its accuracy, your ability to qualify for a home loan will increase.
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