Prerequisites For Finding Residential Funding
When preparing to lend a mortgage the first thing many lenders do is to
make sure about your financial condition. It enables lenders to grant
loans that would otherwise be considered too risky. Lenders look at a
variety of factors, including your ability and willingness to repay the
loan. This mainly is done by the complete verification of borrowers
application, which involves various factors.
They are as following:
a. Your identity.
b. Your income- The amount of money you earn will determine the amount
of money you can borrow to purchase your home. Normally, 33% of your
income is the general rule to be spent on your mortgage, but this can
vary depending upon the amount of down payment, your credit history,
etc.
c. Your debts- The lender will look at the debt paid monthly by the applicant.
d. Your employment history- Lenders see a steady employment in any occupation held by the applicant.
e. Your credit history- Lenders receive a copy of your credit history
in the loan application process in order to determine your willingness
to pay as a borrower.
f. The value of the property you want to buy or refinance.
g. Your financial assets and liabilities.
Your willingness to repay is closely related to how you have fulfilled
previous financial commitments. This is why lenders also place an
emphasis on a pair of numbers called the "housing ratio" and the
"total-obligation ratio." Housing ratio- It is the percentage of your gross monthly income that
you will need to spend on housing expenses after you buy the new home.
It includes-
a. Your mortgage payment
b. Taxes
c. Insurance and maintenance
Lenders generally want to see a ratio of 28% or lower.
The total-obligation ratio- It is the portion of your income that goes
to covering both your housing expenses and any other obligations, such
as credit cards, car loans and child support. Your lender will want to
see a ratio of 36% or lower.
Other qualifying prerequisite is the down payment. Traditionally,
lenders have required a down payment of at least 20% of the purchase
price of the home. However, lenders now accept less amount if the
borrower takes out private mortgage insurance. The larger the down
payment, the less your home costs in the long run. Besides there are
many other documents requires by mortgage lenders. They are:
1. Federal tax returns from the previous two years.
2. W-2 forms from the previous two years.
3. A recent paycheck stub that shows your name and Social Security
number, the name and address of your employer and your year-to-date
earnings.
4. Documents to show other sources of income, which could include a
second job, overtime, commissions and bonuses, interest and dividend
income, Social Security payments, VA and retirement benefits, alimony,
child support.
5. A complete list of your creditors, such as credit cards, student
loans, car loans, child support payments, along with the minimum
monthly payment and the balances.
6. Investment records including mutual fund statements, real estate and
automobile titles, stock certificates and any other investments or
assets.
7. Canceled checks that show your rent payments, or mortgage payments
if you already own a house and are shopping for a new one.
Thus when all these are approved, you get the green signal from the
mortgage lender. Mortgage lender then provides you the mortgage
financing for buying the home of your dreams.
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