May 5, 2011

The Checklist For Securing A Home Mortgage

There are times, when a loan can prove to be the solution to many of your problems and if you are planning to get a mortgage, you should first take a few things into consideration. There are times when a mortgage is easily taken by people, only later to realize they’ve made a huge mistake. To avoid making a costly decision that might come from taking on a mortgage you cannot afford, one needs to take the proper precautions and be careful in how you approach a lender. There are things that you must keep in mind and we shall discuss some of these things now.

You must realize that the economy fluctuates. It is dynamic and therefore you have to act in accordance with the change in the market. However, there are a few things that remain constant and these factors influence lenders and banks in a certain way. The most important things that lenders look out for are:

•          Your income and liabilities

•          Your credit score, for a higher credit shall reap you higher chances of gaining the trust of a lender.

•          The size of your down payment

However, before you approach a lender, you must figure out if it is the right time for you to opt for a mortgage at all.  We shall discuss some of the questions you must ask yourself before you decide on a mortgage.

Do you have debts to pay?

If you have taken personal or auto loans, taken out credit cards, you would not be able to go for a huge mortgage. You must ensure that you limit your usage of the credit card to a maximum of 10% of its limit. Being debt free can be a great advantage in opting for mortgages. So, if you have big loans to pay, you must understand that this is not the time to go for mortgages.

Do you save every month for children's education/ retirement?

Many people save up a certain amount of money as a part of their retirement plan or an investment for the education of their children. Managing your savings needs skill and composure. It might not be very easy to handle and manage both your savings plan as well as your mortgage. You must feel comfortable with managing both your savings as well as your mortgage loan. If you have a huge debt to pay off, you must do so, before anything else, so that your mortgage plans can run smoothly.

Know your credit well

Getting a mortgage might not be an easy thing to do. Borrowing money can be very costly and difficult as well. So, if you are intending to get a big mortgage, you must clear off those debts. Depending on the market, your mortgage strategy must be planned. If you do not have a high score you not even be considered credit worthy. A 680 is a minimum to qualify as credit worthy and higher rates and terms.

There are certain VA and FHA programs for people with a low credit, but in order to get the  maximum benefit through a mortgage plan and avoid any kind of future problems, it is always advisable that you do away with all your debts. Clear them off to have clean grounds to begin with and a string base to build up on. Therefore, if you think there is enough debt to be paid right now, this might not be the right time to opt for a mortgage.

Most lenders look for credit history, (credit cards, mortgage, second mortgage, auto loan, store card, student loan, secured/unsecured installment loan, gas card, etc.) in a good standing.

Do you have enough cash reserves to back you up?

A cash reserve is often necessary if you want to opt for a mortgage. Sometimes lenders ask for a cash reserve that is nearly the six months of mortgage payment. A borrower with enough amounts of cash reserve or saving has a much higher chance of earning a huge mortgage than one who has meager savings. In case of other programs, such as FHA loans, such requirements are not applicable. However, having a good enough cash reserve is undoubtedly a wise option. So, if you are not at your best financial forms right now, you should hold on with your mortgage plans.

 Is there a possibility that your income shall rise?

In order to borrow money, you must be earning some substantial amount of money. If you do not have much savings or if you are running your own business and have not yet established a successful one you must take some time till you have a higher income. Once you start earning more, it will be easier for you to get a mortgage.

 How much debt do you pay every month?

You must calculate the entire amount of debt that you pay each and every month, and the amount that gets deducted from your monthly income. Therefore, if you want to take additional debts, you must make sure that your calculations are done carefully. You must know your debt to income ratio. Calculate it and you shall be able to assess your ability to afford a mortgage.

An insurance policy

There are many people, in the modern world, who invest in purchase of a lot of property and follow by paying premiums for them. If you are already paying for life insurance policies, health or automobiles, it might not be very easy to handle or manage both the mortgage as well the premiums that you pay every month. If there are many to pay, you must not indulge in opting for a mortgage loan right away.

Buying a home is a huge decision and it is one of the biggest investments that you are to make in your life, but you must consider your finances and credit score before you put yourself into any kind of trouble.

Posted in Real Estate Advice
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