How to qualify for a mortgage loan

It takes more than having adequate income to qualify for a mortgage loan. For a successful mortgage loan application, it is important to understand the bank obligations and the process involved.

The process of mortgage loan begins with self-evaluation. This helps to determine level of commitment and to prepare one psychologically on what to expect. This culminates in an interview with a mortgage lender to determine the mortgage options available. This is the first step in risk assessment by the lender to determine key fundamentals of lending including ability to pay, willingness to pay, debt capacity in the individuals income, age, purpose and use of the facility.

Credit control

Past credit history is a key factor and can impact on the decision to lend. This could relate to previous loan facilities, management of credit cards, rental obligations, local government service fees, telephone bills among others. Any lender will be keen to understand your past and determine how it can influence your ability to pay.

Mortgage firms review the property to be purchased to verify that it is in good repair condition, the title documents are free of any encumbrances, that the purchase price compares to the value, given the area; also that the security can maintain or improve its value. Mortgage lenders will be reluctant to issue loans on properties whose values are not ascertained or where values do not tie in with the prices because it would lead to a substantial loss to their clients and to the bank.

Buyer’s equity

The other major aspect of the loan decision lies in evaluating the buyer’s equity or down payment.

The lender wants to make sure that the funds being used by the buyer have been achieved through savings — equity in other sold assets. Any type of borrowed funds has a negative impact on the borrower’s cash flow and reduces his capacity to repay.

Prospective borrowers must provide proof of income, adequate credit scores and even show that they have funds for a down payment.

It is important to keep track of credit to avoid overspending that could lead to a low credit score. If you have over-due bills, you should clear them before applying for a mortgage.

It is important to look at things from the lenders’ point of view. It would not make good business sense for lenders to loan money to someone already spending more than he/she can make.

Improve score

Living within our means is the only way to improve credit score. So know your credit score, work to raise it and check it regularly.

Keeping these major areas of concern in mind helps a homebuyer understand the procedure of mortgage application and to do an informed and effective planning.