Three Key Factors in Qualifying for a Home Loan
When a mortgage company makes a decision about a home loan application, the lender primarily considers three main factors: (1) your ability to repay the loan; (2) your willingness to repay the loan; and (3) the collateral.
Ability to repay the mortgage is determined by verifying your current employment and analyzing your total income. Lenders prefer for you to have been employed at the same place for at least two years or to at least be in the same line of work for a few years. Your estimated monthly payment will be compared to your monthly income and debt.
Willingness to repay is influenced by how you have paid previous loans and by examining how the property will be used. Willingness can be gauged by your credit report and previous commitments to pay rent and/or utility bills.
Collateral is the property that is pledged by a borrower to protect the interests of the lender.
It is important to remember that there are a set of rules a lender uses to assess these factors on each loan to determine if the lender will ultimately lend you money. These rules are called a Credit Policy. Each loan application is evaluated individually on a case-by-case basis. Many loan applications may come up short in one area, but make up for it with other strong points.
These compensating factors may include a large down payment or overall financial health. Securing mortgage insurance to protect a lender in the event you are no longer able to pay the mortgage may also impact qualifying for a home loan.
Contact Academy Mortgage with any questions about qualifying for a home loan.
When you’re making the decision to refinance, there are several things to keep in mind.
First, if your current interest rate is significantly higher than today’s lowest rates, you may be able to roll your loan costs into your new mortgage and still get a lower rate than you have, thereby reducing your interest payments and lowering your monthly payment immediately.
Second, if you are planning to stay in your home for at least three to five years, it may make sense to pay “points” (a point equals 1 percent of the loan amount) and closing costs to get the lowest available rate.
And third, you can avoid laying out cash and still get a low rate by financing the points and closing costs in your new mortgage. Does that mean shouldering a lot of extra debt? Not necessarily. If you’ve had your current mortgage for at least three years, you’ve probably reduced your balance by several thousand dollars.
So you may be able to include your closing costs in your loan and still end up with a mortgage that’s smaller than your original loan—with a lower interest rate and lower monthly payment.
You also may want to consider lowering the term of your loan to pay off your home sooner. This option may raise your monthly payment, but it could save you a substantial amount of interest over the term of the loan.
Another refinancing consideration is choosing a fixed-rate loan, which has an interest rate that is fixed for the entire term of the loan, as compared to a variable-rate loan, which has an interest rate that can increase or decrease
based on the short-term indexes.
Contact Academy Mortgage to see if refinancing is a good option for you.
10 Steps to Homeownership
From pre-approval to closing, Academy will help you along the road to homeownership. You can count on us for responsible, honest, and ethical service in every step of the process.
- Loan pre-approval. Pre-approval allows you to search for a home that you can afford based on your credit, income, and assets. An application and supporting financial documents must be submitted to your Loan Officer, including pay stubs, tax returns, and account statements.
- Home search Once pre-approved, start shopping with your real estate agent! When you decide on the right home for you, the terms of sale are negotiated and your agent presents your offer to the seller.
- Formal loan application and product selection. After the seller accepts your offer, formally apply for home financing and select the ideal loan product to meet your needs.
- Appraisal and home inspection. As your application is being processed, an appraisal is ordered to identify any discrepancies between the sale price and appraised value. Properties are also inspected for water and termite damage and other safety hazards.
- Processor’s and underwriter’s review. A loan processor reviews the entire loan file and sends all pertinent information to an underwriter who makes the final decision to approve the loan.
- Final loan approval. If you have a good credit score and debt-to-income ratio, your loan will likely be approved. Keep in mind that there may be financial conditions or property conditions that need to be met before final loan approval.
- Closing. Final loan and escrow documents are prepared and signed by you (the buyer) and the seller.
- Funding. A wire or check for the amount of the loan is sent to the title company.
- Close of escrow. Documents that transfer titles are recorded with the county.
- Confirmation of recording. The title company authorizes the escrow company (or closing agent) to draft a check to the seller.
Ultimately the final step . . . MOVE INTO YOUR NEW HOME!