Mortgage Loan: What are the Details?
What is the big deal about getting a mortgage?
A great deal goes into qualifying for a mortgage loan. The details can often be frustrating as they not so straight forward. Many potential homeowners feel that they have a job, they can afford to purchase a home, therefore what is the big deal?
The reality is there are lots of big deals that banks need to consider when approving someone for a mortgage loan. Each big deal is a detail that is calculated into the risk of the lender in determining if they will get their money back.
The First Big Deal is the Credit Report
The first detail in a mortgage loan is of course the qualification of the borrower. The bank looks at the borrower income and debt through debt to income ratios or DTI. This will give the bank a sense of whether or not the borrower can repay the loan. Next the bank looks at the credit of the borrower to see if they have shown the ability and willingness to repay loans in the past, as well as to see just how far into debt they may be at the present time.
Finally they look at a borrowers assets. This is similar to the safety net a borrower may have if they were to loose their job, or take a pay cut. The main questions is, does the borrower have enough time to get back on their feet should something happen without risking the loan? A borrower may have a great job today that allows them the ability to make payments today, but what if they get laid off, or become sick?
The Next Big Deal is the Property
The next detail in qualifying for a mortgage loan is the property itself. Does it hold the value worthwhile of the loan itself? Once again many borrowers feel that if they are willing to pay a certain price for a home, who cares? The reality is that the bank is the one holding the loan at the end of the day, so of course they do.
The bank wants to be sure that if the borrower where to walk away from the loan for what ever reason, they can get their money back. This coincides to not lending 100% of the value of the home. Once again, the bank looks at it from the standpoint of getting out of the loan. They want to sell a home valued at $100,000 for $80,000 because it is a good value and will sell quickly. It also allows for market depreciation.
The Final Big Deal is the Title
The final detail is having a clean title report. This is probably the simplest of the bunch, but it does defend against shady deals in which a home is resold over and over again in an attempt to only make money. Without a title report, a borrower could buy his own home under a mortgage purchase loan, which is much easier and cheaper than a refinance.