Thinking of your perfect home? A mortgage loan could be the vehicle to your journey’s end. But, before you look for the mortgage for your dream home, maybe you will have to consider five key factors which will have to be met before you even think of applying for the mortgage. The mortgage can come from a bank. That said, the lender—whether a bank or a finance company— will set certain conditions for eligibility, some basic criteria for the approval of the mortgage. Here are the five qualifications.
Credit Score ( For Mortgage Loan )
This one harks back to your payment history. When you apply for Mortgage loan, the bank will check your repayment history with a fine-tooth comb. Your repayment history is your credit score. The higher the credit score, the more the chance you qualify for the mortgage loan—your application to be approved. And the better the interest rate offered to you. That said, for government-backed mortgage loans, the credit score gets a more relaxed appraisal. But for the standard mortgage loan, a credit score of at least 750 is required. Check it up with the mortgage loan eligibility calculator. A low credit score translates to paying more for the mortgage over the entire tenure of the mortgage loan.
Debt-To-Income Ratio ( For Mortgage Loan )
The DTI or debt-to-income ratio is the percentage of debt relative to income, mortgage payments included. If all the liabilities add up to, say, Rs 1,500 a month and the monthly income is Rs 5,000, then the DTI ratio would be 30 percent. Check with the mortgage loan eligibility calculator. To qualify for a mortgage loan, the DTI ratio should be around 40 percent max. If it crosses 40 percent, more proof of ability to pay would have to be provided.
Down Payment ( For Mortgage Loan )
Putting money down on a home is a requirement when you apply for a mortgage loan. No lender bank will give 100 percent of the mortgage loan. The down payment protects the lender. Normally, 20 percent should be the down payment. Less than that and PMI or private mortgage insurance will kick in.
Employment Status ( For Mortgage Loan )
Whether you are self-employed or salaried, banks will look at your employment status before they even think of extending you a mortgage loan. When he will apply for a mortgage loan, the borrower will have to provide proof of being employed and for how long. For at least two years in the same employer is the minimum requirement. Without steady income, no bank will give a mortgage loan. The employer will have to give a certificate of employment, and of income. In case there is no employer, proof of income from a different source will have to be furnished.
The Value And Condition Of Your Mortgage Home
Last, the bank will ask to be shown if the home being bought with the mortgage loan is not old and dilapidated, not worth the money you are shelling out for it. Home inspection and home appraisal are part of the process. When you apply for a mortgage loan, no bank will settle for a crumbling house deal. If the inspection and the appraisal disclose major drawbacks to the mortgaged home, there will be no mortgage loan forthcoming.
The value of the home determined by the home appraisal, and checked with the mortgage loan eligibility calculator, will decide the loan amount. Most banks will only give a percentage of the appraised value. This will be over and above the down payment to be made. In case the deal does not suit you, it is better to walk away.
In fact, the borrower should insist on a ‘walk away clause’ in the home purchase agreement. That will be the only protection if the home appraisal brings out major flaws in the home. At such times, even the mortgage loan eligibility calculator will not be of any great help.
If it is not possible to negotiate the home purchase, then the ‘walk away clause’ will be the only way out of a sticky situation. That said, different banks have different rules regarding specifics and maybe after doing the rounds you will find one that will extend a mortgage loan that fits your requirements, and you fulfill the specific criteria.