Home buying is not an easy decision, though attractive. It involves money and effort. Banks also don't lend money to everyone. Mortgage lenders have certain criteria which they apply to every loan application that they receive.
Before lending, lenders try to find out if you have the capacity and the will to pay back mortgage loans.
A banker follows following criteria to assess an application for a mortgage:
Employment History
Things like how long a borrower has been working, whether permanent or temporary, full time or part time are crucial. This indicates his sustainability in the job market. This should indicate that a borrower has been regularly on the job. It is natural that one might have changed jobs over time ad that is acceptable.
Gross Income
A long employment history also shows that an applicant has a consistent flow of money. Gross income includes overtime work, income from second and part time jobs, social security and welfare benefits, alimony, child support, disability benefits etc.
Net Worth
While assessing the net worth of a borrower, a banker considers all of his assets and debts. Assets consist of liquid cash in the bank, GICs, investments, insurance policies, investments in stocks and mutual funds, properties and equities in them. Debts will include all loans, credit card debt, mortgage loans, car loans, retail debt. etc.
Monthly Expenses
A banker will also take into account all the monthly expenses that a borrower will have to incur. In this, recurring expenses like monthly rent, school fees, living expenses etc. are important. This should not be more than 28% of gross salary. Expenses will also include monthly repayment of loans and interest, property taxes, mortgage rates and mortgage payments, homeowner's fees, mortgage insurance, payments on student and car loans etc. All monthly expenses and payments should not exceed 36 per cent of your monthly earnings.
Credit Score
A credit score is derived from a credit report. A credit report shows whether a person has been paying his monthly bills and debts in time, composition of credit and credit history. A credit score is calculated by a special type of software. Any credit score above 680 means good credit. While 850 means a excellent credit, 350 means worst credit.
An average person may not understand all the factors involved while applying for a mortgage. There are also certain special assistance programs that are available but which may not be known to every home buyer. Therefore, it may be advisable to take the help of experts.
The author has background in business, economics and finance. He is presently researching in finding ways to make money and working on the following website and blogs:
http://www.businesses-jobs-careers.com
http://makemoneyplans.blogspot.com/
http://www.ReviewAnythingOnline.blogspot.com
