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how does a home mortgage work?

By Edited Jul 14, 2015 0 0

Are you planning to buy a home in the near future? If so, you will want to do some research prior to buying to ensure you will be able to qualify for a home mortgage.

Lenders require that certain conditions must be met in order to approve a loan. Before applying for a home mortgage, it is imperative that you obtain a copy of your credit report from several agencies and review all of the information. If you find anything negative on any of your credit reports, you should review the information and contact the creditors immediately to resolve the issue. Not resolving negative items may result in a lender not approving your home mortgage application.

You should also plan on making a down payment when purchasing your home. Once you decide that you want to buy a home, you should start saving money for your down payment. Lenders do not typically lend 100% of the selling price. You should also determine the EMI (Equal Monthly Installment) for the loan amount and terms you are considering. There are web sites that will help you calculate your EMI. You can find excellent website for the calculation of your EMI online.
As a general rule, your gross income should be three times the EMI you are considering. If the EMI is higher than three times your income, it may become more difficult to be approved for a home mortgage. You should also consider your other obligations such as credit card payments, car payments and monthly dues when deciding what loan option and payment is feasible for your situation.

If your down payment is fairly low, you may be required to obtain home mortgage insurance to protect the lender. Lenders will explain how much down payment must be in order to waive the home mortgage insurance. You are also required to carry homeowners insurance and pay property taxes which vary depending on the county and state in which you reside.

Once you've submitted your application for a home mortgage, the lender will want to verify your income and savings. You will need to submit copies of your paystubs and bank statements as requested by your lender. Lenders need to verify that your income is stable and you have a history of earning comparable salaries. They like to know that you have been at a job for a length of time which is typically greater than two years. Self-employed individuals may want to enlist the assistance of a broker who can help document the lender's requirements. You can locate a broker in your area online, but be careful about revealing personal information online.

Another option to consider is an ARM (Adjustable Rate Mortgage). With this type of home mortgage, the interest rate adjusts at intervals defined by the program guidelines. This can be risky if the interest rate rises and causes the borrower's payment to be higher than it was originally and may cause hardship to the borrower forcing him/her to sell their home because they can no longer afford it.

Before applying for your home mortgage, you need to determine how much you can afford and how much of a down payment you will have. Additionally, you need to review your credit rating and income before you consult with potential lenders. Buying a home is the largest purchases most people will make therefore the more research and planning you do initially, the more satisfied you will be in the end.



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