Buying a property in cash is the most ideal approach as you would be relieved of having to pay a debt regularly as a mortgage loan. But even moneyed individuals resort to mortgage financing as they find it attractive to buy on installment and invest their excess funds in other ventures. These types of loans are more applicable to average wage earners who aspire to have their new home through mortgage contracts. The market is swamped with many home mortgage loan offers. Your eligibility for a mortgage loan depends on two major points. One is your credit score and second, your ability to pay. If you have decided to apply for a mortgage loan, be sure you have made ample preparations beforehand.
What Is A Mortgage Loan?
A mortgage loan requires collateral before a loan is approved. The collateral is the property, usually a house, to guarantee the payment of the loan. The lender or mortgagee is given a lien by the borrower or mortgagor or the right to repossess the collateral in case the latter fails to pay the account. The borrower continues to use and possess the property as long as he or she regularly meets the monthly obligations. If he/she defaults and fails to settle the loan, the lender will foreclose the property and sell it to recoup the money. Normally, mortgage loans are offered by banks. However, there are also credit unions, pension funds and various government agencies that serve this kind of loans. The interest rate is considerably lower because of the collateral. There are two types of interest rates applied; the fixed interest rate and the adjustable rate mortgage or ARM. It is usually payable in five to thirty years. The payments are generally made as an equal monthly amortization.
How Can You Qualify?
There are two things that you must fully satisfy before you can borrow using a mortgage loan. You must have a good credit score and the capacity to pay. If you are planning to negotiate a mortgage loan, you should first secure your credit report. Review it and if you find some errors, coordinate with your credit bureau to have it corrected. This is very important since this will be used by the lender in the evaluation of your mortgage loan application. Be sure that what you are presenting to your mortgage lender is the true or corrected version of your credit score. The next step is the proof of your capacity to pay. Normally, the mortgage lender or broker if you are not dealing directly with the lender will require you to present various documents. The first question you’ll be asked is about your employment. The name and address of your employer, your position, salary and other emoluments that you are entitled are required. You will also accomplish a VOE or verification of employment form. You will need to produce your two years tax papers like W2s and copies of pay stubs to support your income declaration. If you are a self-employed individual, you need to support it by showing your income tax returns with financial statements for the past two years.
In applying for a mortgage loan, you must make the right preparations and have the understanding of how it works, or else, it would be a stressful experience on your part because of several documents required. Besides, you must have a idea about the kind of house you want and the amount of budget that you have. If you are not prepared for this, it would take time before you can start the process for a mortgage loan.