Because a home
mortgage
will probably be one of the biggest
investments you will ever make, it is a good
idea to figure out just how much you can
realistically afford. Mortgage lenders use a
variety of standards when evaluating your
creditworthiness. Some of the things they will
look at are:
-
Your credit history
- if you have too many delinquencies and
defaults on your credit report, lenders will
see it as a sign that you are a potentially
higher risk and less likely to default on
your monthly mortgage payments. If you have
any credit blemishes on your record, provide
an immediate, detailed disclosure, and try
to pay off as much
debt as you can before
applying for a
mortgage
loan.
-
Your monthly gross income and
job security
- One of the main reasons for foreclosures
is borrowers trying to do too much. A loan
processor will want to verify your
employment information, your income, how
long you've had your present job, and your
likelihood of continued employment.
-
The amount of your
down
payment
- The more cash you can put down, the lower
the odds that you'll default on your loan
because you have more invested in your
property.
When you apply
for a mortgage loan, a lender will generally
require that your monthly housing expenses,
which include the principle and interest of your
mortgage payment, real estate tax and
homeowner's insurance, not exceed 28 percent of
your gross monthly income. In addition, lenders
typically require that your total
debt
obligations not exceed 36 percent of your gross
monthly income. Total
debt obligation includes
any other monthly expenses that you may have,
such as student loans, auto loans, and credit
card bills.
If you are a
homeowner, you will have to pay property taxes
to your local government. Therefore, it is
important that you get an estimate of the
property tax in the area where you want to look
for a home, and also ask what additional fees
and assessments may apply.
You will also be
required to have adequate homeowner's insurance
as a condition of your mortgage loan. The cost
of your insurance policy will in large part be
determined by the costs of rebuilding your home
should it be destroyed. To be safe, buy the most
comprehensive insurance plan that you can and
take a high deductible to help minimize costs.
In addition, inquire about special requirements
for hazard insurance, such as mandatory coverage
for floods, earthquakes, or hurricanes in high
risk areas. If you put down less than 20 percent
of the purchase price, you will also be required
to pay private mortgage insurance (PMI).
Mortgage Glossary1
