The amount of home loan you can qualify for is a significant factor to decide when planning to buy a home. This means that when you go to look for a house, you already know the amount of money that you will be able to borrow hence shop effectively. In the following article, you will find a brief overview of home loans and some factors that determine whether a borrower will be approved or not and how one can get the maximum loan amount.
What does Home Loan mean and How does it operate?
A home loan or mortgage loan enables you to pay for a home in installments and takes a long time to be paid usually 15 or 30 years. A mortgage is a borrowed money to buy a home with a promise to pay the money back after a specified interest rate and fees are added. This enables you to purchase and occupy the home without having to pay the full cost of the property when making the purchase.
Mortgages are examples of secured loans where the property being bought, in this case the home, is used as security. Lenders are able to repossess the home when you default on your loan repayments. Monthly instalments strengthen your standing and over the agreed number of months, you end up owning the asset after repaying the loan balance.
The following are the requirements that define the eligibility of one to obtain home loan:
In home loan, you need to provide your financial details and based on this, the lender decides whether you can take a home loan or not and how much amount you can borrow. While guidelines vary between lenders, here are some key factors that affect home loan eligibility and amounts:While guidelines vary between lenders, here are some key factors that affect home loan eligibility and amounts:
Income – This is the gross annual income from employment, investment or any other source of income that you have Lenders tend to attach more value to steady income sources that have been proved to be constant in the recent past. Usually, there are limitations imposed on the proportion of debt to income, it varies and it should not exceed 43% or less.
Credit score – This depends on the type of loan required but most lenders expect a credit score of not less than 620 or not more than 700. The higher the rating that one has, the higher probability of having the approval and low-interest rates. In this case, if the score is less than 580, then the candidate is most likely to be denied.
Although both options can be good depending on the circumstances, it is generally better to put more money down. Down payments vary and are as low as 3. 5 percent and as high as 20 percent. PMI insurance is required if less than 20 percent.
Other existing debts – Your other debts cannot be too high in relation to your income as per the lender’s criteria. High monthly installments for cars, student, credit card and personal loans also reduce the amount that they may request on your behalf.
Assets and cash resources – Lenders want to see that applicants have more cash and other money that could be useful if income reduction happens. Safety is provided by checking, savings, investments, retirement accounts, gifts, etc.
Employment history – Maintaining steady, long-term employment is beneficial since it shows the lender that you can continue making loan payments over the long term. Loopholes need letters to proffer justification. Number of changes of jobs per year might cause some concern.
Credit history factors – This includes foreclosures, bankruptcies, collections, liens, judgments, and late payments make it harder to borrow and may even limit borrowing capacity if occurred recently. Older issues matter less.
You can get pre-approved early on so that you know how much you can pay for a house before you start hunting for one.
Here are some tips that can help you qualify for the maximum home loan:
If your goal is to qualify for the highest possible home loan amount, keep these tips in mind:If your goal is to qualify for the highest possible home loan amount, keep these tips in mind:
Not exceeding the credit limits – Especially when the client is about to apply for a mortgage and in a bid to reduce one’s DTI ratio.
Apply for new credit cards – This is because when you are granted new total credit limits, it is good to have higher total credit limits in your credit report, which if not exploited will improve your utilization ratio.
Look for errors – If the errors have a negative effect on the reports, reporting the error can help to increase the score.
Do not apply for credit – New credit applications lower the score just a tad before a mortgage application. It is better not to open new loans or credit cards for at least half a year to a year if possible.
Document your assets – Prove to the lender that you have at least six months to a year of mortgage payments in your accounts, which has to be invested somewhere, to boost your approval chances and the loan amount as well.
Go pre-underwritten – This means finding a lender that will provide a pre-underwriting assessment to check on the applicant’s eligibility and identify areas where they may need to improve on before they can be considered for a loan.
Some of the requirements may differ from one lender to the other or even from one loan program to the other but concentrating on the above areas will set you in the best stead to secure the highest home loan amount possible within your ability as soon as you are ready to purchase a home.
