The Loan Approval
You have gone through the
process
of applying for a mortgage. All of your paperwork
and necessary documents are tuned in and in order. So
now what?
After your application is filed, and you have gone through
all of the required steps, you have to wait to be approved.
Contrary to popular belief, not everyone who applies for
a loan is approved.
There are many factors a lender considers when deciding
whether or not to extend you a loan.
The article, “Loan Approval,” featured on
mortgage-x.com, explains some of the most common things
lenders look at when considering a loan application.
“When lenders are considering to extend loan,
they must assess the three areas of underwriting; collateral,
credit reputation and capacity (named three "Cs").”
These three items all have to do with the items you have
of worth, your history in paying back previous loans and
your capacity to payback this loan if they were to give
it to you.
When looking at collateral, they look at the
value
of the home you want to finance, the down payment,
the type of property and thing such as that.
“The lender wants to make sure that the value of
your home would support the
amount
of your mortgage. Usually, the amount of your loan
can be no more than 95 percent of the appraised property
value or 95 percent of the sales price of your home, whichever
is less. The lender will arrange to have a professional
appraiser estimate the market value of the house you plan
to buy. The appraiser looks at what the home is worth
today and how the neighborhood may affect future property
value.”
When looking at collateral, lenders will also look at
the down payment you have made. Most require that you
put down at least 10 to 20 percent, but there are new
programs that let buyers put down as little as 3 percent,
or sometimes nothing at all.
Capacity basically looks at everything all together, so
it is helpful to have your documents in order so it is
easier and faster.
“When looking at capacity, your income, debt, and
cash reserves are verified. Lenders generally prefer that
your housing expenses (including
mortgage
payments, insurance, taxes, and special assessments)
not exceed 25 to 28 percent of your gross monthly income.
Other long-term debt (monthly payments extending more
than 10 months) added to your housing expenses should
not exceed 33 to 36 percent of your gross monthly income.”
Your credit history is looked into with great detail when
lenders consider your credit reputation.
“Lender
orders a Credit Report, supplied by a credit reporting
agency, on you to check your ability to repay a loan.
If there any credit problems - a history of late payments,
foreclosures or judgments, your lender may then ask you
for a written explanation or clarification of any problems.”
After the lender looks at all of the three “Cs”
they will determine if they think you are a good candidate
to receive a loan. At this point, you just have to cross
your fingers and hope for the best.