Home Mortgage Loan
Getting an average mortgage loan is not difficult but getting a great mortgage loan requires that you have all your ducks in a row and have managed your financial life well. Here are some of the parameters that lenders use to rate you as a borrower. Before you apply for any mortgage loan, you should know your ranking on these parameters. Knowing your rating on these parameters will not only boost your approval chances but also help you get a great mortgage loan. These parameters or guidelines are industry wide standard with Fannie Mae and Freddie Mac each publish these guidelines covering everything from qualifying to closing to selling the mortgage loans. These guidelines form the core of what are known as conforming guidelines, or those guidelines that conform to conventional fannie Mae and Freddie Mac rules. Most single family mortgage loans are conforming loans as the maximum size of a mortgage considered as conforming was $417,000 for 2006. However, there are loans outside these guidelines and they are known as nonconforming loans with no upper limit on borrowed amount.
When you apply for a mortgage loan, guidelines set by Fannie Mae and Freddie Mac drive the whole loan approval process. These guidelines are primarily based on four areas of the loan that each lender must consider:
 CASH - Each borrower must have "enough" cash to buy the house and close the mortgage loan. Lender will request documentation to verify that borrower has cash assets. This is usually done by lender sending a Verification of Deposit or VOD request to the bank, credit union or the financial institution holding these assets. Remember, as a borrower you should have a good explanation on how you received this cash otherwise it will negatively impact your application. Remember, You may get approved for a loan even if you don't have sufficient funds at the time of the application provided that you can save this money prior to the closing. You can also receive gifts from your family members and it is acceptable as long as you have proper documentation.
In summary, a borrower must have enough money to pay for the following items:
1. Down payment on the loan
2. All the closing costs associated with the purchase of the property
3. Cover the equivalent of two months' worth of house payment beyond closing costs and down payment
4. When down payment is less than 20%, 5% of the cash must come from borrower's own resources.
CREDIT - This is the single most important part of any mortgage loan application. Mortgage industry uses a system of computer-based score system that assign each borrower a CREDIT SCORE or FICO score. Mortgage lenders also pull the combined credit reports from all three credit reporting agencies. Your credit score is a three digit number calculated by a complex mathematical formula. While credit agencies will not disclose their calculation methods, they will tell you that following factors have greater influence on you credit score as compared to other financial factors.
1. Too much open credit - You're seen as a risky borrower if you have too much available unsecured credit.
2. Too much debt - If you have too much debt, it may affect your ability to pay back mortgage loan. A past history of paying off debts does help but key here is to keep the debt load low.
3. Missing payments or late payments - Have you everbeen late on your credit card or auto loan payment? Being late on a loan payment shows that there is considerable risk in loaning money to this borrower and lender would either raise the rate to compensate the risk or deny the loan application.
4. New applications for credit - If you have been applying for credit cards, store cards or personal loans, these enquiries show up on your credit report. These inquires will stay on your report even if your application is denied. Lender usually look at the past 12 months to see if you have been seeking credit.
You should order a copy of your credit report before you apply for a mortgage loan. One of the reasons being possible errors on the report. You want to make sure it doesn't have anything that you're not aware of it. The last thing you want is to find out any negative items on your credit report from your mortgage lender.
Also, having a poor credit score doesn't mean that you can never own a home. There are plenty of lender who specialize with poor credit mortgage loans. These lenders are known as sub prime mortgage lenders. You may get a loan with them but it will cost you lot more in interest payments since these lender charge higher interest rate to compensate for the risk.
INCOME - Normally, borrowers must have sufficient and documented income to satisfy the mortgage lender that they can pay their debts, including the mortgage. Income guidelines can vary from lender to lender and from one type to another type of loan. Usually mortgage lenders require that a borrower provide 24 months or two year employment history. If you have been is your current job more than two year, this process will be easy part. Lenders normally request recent paystubs and W-2s to verify income. A lender can also fill out a standard request to your employer for Verification of Employment or VOE.
You should be prepared to answer questions if you have large income disparity from one year to next. If you have overtime and bonus income included in your regular income statement, you may have to provide proof that it will continue to be earned in future. You can also include any alimony or child support income to your lender. However, laws require that a lender may not ask if the borrower is receiving alimony or child support. If you volunteer this income, you can still ask them to exclude it from any mortgage qualification process.
APPRAISAL - Appraisal is a critical part of your mortgage loan process because the property you're purchasing will be used to secure the loan. Loan amount is based on the lesser of the sale price or the appraised price of the property. Residential property appraisal process has evolved over the years and now a days, it is quite sophisticated. Appraiser looks at various factors that may not seem obviously to most home owners or home buyers such as type of area, market conditions etc. The end goal of a appraisal is to establish the "Market Value" of the property. Appraiser will also compare it to three recent sales of the comparable properties in the area.
One of the common issues as a result of appraisal is the property lavue being below "sale price". For example, if you're purchasing a house for $100,000 with $95,000 loan and appraisal indicates that house in only worth $90,000, you now are looking for a loan that has a LTV(loan to value) of 105%. Most lender would raise questions on such a loan but it is still possible to get approved and close the sale.
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