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Different markets require different strategies and different loans. There are MANY factors you must know to ensure you get the absolute best.
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This document is intended to provide you with a general overview for obtaining a mortgage loan, how it works, and what important factors are involved in the process. As it is true with all investments, the most important factor to a mortgage lender is: how good of a risk you are as a mortgage applicant.
You are going to borrow a considerable amount of money for a relatively long period of time. Therefore, naturally, the lender is assuming a certain amount of risk by lending you the money. The lender needs to be assured that you will pay back the original loan amount plus the interest on that money.
The lender will evaluate all of your documents such as your credit report, your income and debt, etc. and based on that will decide whether or not the risk of extending credit to you falls within their guidelines. If it does, then they will map the risk, to an interest rate. In other word, the better risk you are, the lower the interest rate on your mortgage.
- Proof of income, W2’s & 1040’s (last 2 years) and one month of recent paystubs
- Name and address of employer(s) (2 year history) proof of employment
- Name and address of landlord or your mortgage holder (2 year history) OR Mortgage Coupon Statement if you own a home
- Last 3-months bank statements – all account #’s and balances: checking, savings, IRA’s, etc.
- Open Credit accounts: include all accounts and balances
- If Self-employed, we will need more months of bank statements unless your credit score is higher, then we MAY not need even these!
- Social Security Card and Drivers License copy
- LOE (Letters of Explanation) for whatever we wish to explain
- Are you making enough money?
- How much is your debt?
- Are you credit worthy?
- Can you pay for the down payment and the other costs associated with the loan?
- Is the house you are buying worth the money?
- What are you trying to do i.e Investor Loan, VA loan, City program, Flipper, Not showing much … there is a loan for most every situation!
Are you making enough money?
Your long term debts, as described above, are important in lender’s decision making process. Long term debts are defined as debts that are extended 10 to 12 months into the future. Naturally the more long term debts you have, the less your capacity to take on another long term obligation with a fixed income.
As we mentioned, the approval process, for the large part, deals with the questions of “How good of a long term risk you are”. Your credit history is the most important factor that determines the answer to this question.
Lenders also require you to pay between 10 to 20 percent of your loan amount in advance, as down payment. However, if you can not make the down payment, you might be qualified with as little as 3.5 percent (or less depending on your lender and your situation). In these cases, lenders will require you to carry a Private Mortgage Insurance (PMI) to cover for some of the risk they will take.
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