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How To Qualify For A Mortgage
By Kaci Cooper, 23 Jan 19:11
The hard part about loans is that they hold your home and land as collateral if you cannot pay up. The flip side is that lenders do not want to end up in possession of your house.
They, for their own benefit, want to see you succeed in making your payment on time. Lenders, thus, will scrutinize your credit report to make sure that they can handle the risk. So make sure you get your paperwork in order.
Also, make sure you understand these facts:
-Down Payment: Most lenders set your down payment at twenty percent of the cost of the home. They do this because the more you have invested in the home, the more difficult it will be for you to walk away.
-LTV (Loan to Value): To get this value you divide the loan amount by the appraised value of your home. If you have a high LTV, you will still most likely qualify for a loan, but it will most likely be at a higher interest rate.
-Debt Ratios: There are two that you need to keep in mind. First, your housing ratio (your monthly house payment plus other costs of home ownership)
must be divided by your gross monthly income.
This gives you the first part you need. The other is debt ratio. Take all your monthly debt and add it to your housing expenses and divide it by your gross income as well. These are your debt ratios. It is best if it is no more than twenty-eight percent for the front ratio and thirty-six percent for the back.
-Credit Report: A lender will run a credit report on you to assess the risk factor of lending you money. FICO scores range from 350 to 850, 850 being the best score. On average, in the U.S. credit score are 723. Thus, most people with scores 720 to 760 still obtain good mortgage interest rates. Seventy to eighty percent of lenders determine your borrowing power based on your FICO score.
-Automated Underwriting System: You can find out quickly if you qualify for a loan by using an AUS, which takes into account your overall debt and credit scores.
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