Before you can purchase a dream home, you need to first qualify for a home loan. Having a grasp at how they work will all but ensure that you are entitled for a home loan.
Lenders will consider two criterias when evaluating if you are able to qualify for a home loan: your financial means to repay the loan and your inclination to repay it.
Ability To Repay
The very first thing a lender will consider is whether you can repay the loan in which you’ve applied for. The lender then looks at your current employment. Have you been working at your current job for at least two years or at least in the same field for a few years? This helps gives the lender assurance that you have a steady flow of income, and its a bonus when qualifying for a home loan.
The lender will also check your overall income and compare it to your debts, before calculating your estimated monthly mortgage payment. You’ll need to have adequate income to pay off these payments comfortably. This shows your ability to repay the home loan successfully when qualifying for a home loan. Should the lender find your debt commitment to be too high, you will most likely qualify for a smaller loan and likely be to charged a higher interest rate for your mortgage. For that reason, its imperative to pay off as much of your debts as possible before considering a home loan.
Willingness To Repay
The last and final step at qualifying for a home loan is accessing your ability to repay the loan. Lenders decide this through checking out how much debt you’ve paid off through the years, and it is why lenders ask for your credit report.
If you have diligently paid them off with on-time payments, it will greatly help you. The lender will also ask for the reason for buying a particular property. If you decide to stay there, it is increasingly likely that you’ll honor and repay the loan.
The lender may then request for a comprehensive financial outlook of your life – your salary, assets, credit report and additional info – when qualifying for a home loan. When you submit all the required information and the lender is able to confirm it, it shows the lender that you can repay the loan. You’ll then be able to greatly increase your chances of successfully securing a home loan.