Qualify For a Home Loan

Buying a house is everyone’s dream, especially if you have a family to raise. It isn’t easy in today’s economy to buy a home with cold hard cash and most will have to apply for loans or mortgages to be able to purchase a home. Even if you have a good paying job or some savings stashed in your bank, it will still be difficult to keep up with monthly payments. This is why it’s important to know more about making loans and working out how much you qualify for with a mortgage.

The first thing you have to think about is how to come up with the down payment. It is a partial payment or percentage of the total cost of the house and paid at the beginning of the purchase. It is a symbol of good faith and honest intention to pay the balance at a later date either as lump sum or partial installments. The usual down payment required is around 10% to 20% of the total value of the home.

You may be able to pay less than 10% if you purchase private mortgage insurance. But, the more down payment you render, the lower you have to pay in monthly mortgage payments.  It is a good idea to start saving for a home down payment when you begin working. You can save more money this way and will be advantageous to you later on.

Another important factor for a mortgage loan is the proportion between the estimated mortgage payments and any existing debt that won’t be paid off within ten months. These debts could be anything like alimony payments, student loans, auto loans or credit cards debt. A 28 and 36 ratio are commonly used by lenders. That means that 28% of your gross income should cover the mortgage. That figure includes interest, real estate taxes plus principal and insurance.

The 36% stands for payments not exceeding your gross income for the debt including house payments. If you can’t qualify for their standards  you likely be declined for the mortgage. In case you are rejected for a loan, ask for a written explanation as to why they can’t grant a mortgage. This will help you make a better application the next time you try to get a loan.

If you have already found your dream house, find out real estate taxes for that area and check what the annual rates are so you can calculate how much you will need to pay in annual real estate taxes. After that calculate your closing expenses. These are the fees you have to pay for getting the loan facilitated. It also includes fees for a surveyor, title processing fees and deed recording fees. The lenders charge different rates and can run anywhere from 1% to 8% of the total purchase price.

Add all these payments to the total cost of the house and then calculate the payments on the home. If you get an equivalent of over 28% of your gross income, then you may have a difficult time getting the mortgage approved. If the number is below 28% then there is a big possibility you will get that mortgage.