To say the mortgage industry is in flux is much like saying the sun is warm - a bit of an understatement. Loans are now a lot harder to get and many wonder if the banks are just pooling money to help their bottom line or are just proving to be very picky when giving out loans.
Can you get a loan in this market? Yes, you definitely can. Things have changed, however. Filling out any old application and putting down three percent is not going to cut it any more. Lenders have returned to more traditional lending procedures, which means you need to understand the various factors involved.
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The first thing to grasp when seeking out financing is the concept of risk. Banks have been burned heavily in the last five years. Many of those injuries are self-inflicted, but that doesn't help you when applying for a loan. When viewing any aspect of your request for a mortgage, view it from the lender's perspective. How much risk is there and how can you minimize it? Stick with this approach and your chances of approved will be much higher than most borrowers.
When applying for your loan, the lender is going to be paying close attention to your history. The first element of your history that is a concern has to do with stability. A lender does not like change. They want to see someone who has been in a job for at least two years, but the longer the better. They also want to see you living in one location for some time as well. A person that moves every six months is probably not going to be happy living in a home for 20 years.
As you already are likely to know, your credit score is a big element in the consideration as well. Simply put, how have you handled debt in the past? Did you make payments on time? Did you run up your credit cards? More importantly, did you pay them down? What is your current debt to income ratio? Common sense indicates you want no late payments and want to have paid down as much of your debt as possible.
The Loan-to-Value calculation is taking on greater precedent again. In the last 10 years, the banks have been willing to loan almost as much as the home is worth. When homeowners started owing more than their home was worth, they just walked away and banks got burned. Well, they are not going to go through that again. Count on banks limiting the loan to value to 80 to 90 percent, meaning you are going to need a down payment of 10 to 20 percent.
So, what if you come up short in one of these areas? Well, there is one thing you can always do. You need to make a larger down payment. If you put down 25 percent or more, most banks are going to be very comfortable giving you a loan even if your credit has a few dings or other problems exist. Why? Because you are now sharing the risk with the bank. On a $300,000 loan, you will be putting down $75,000 with a 25 percent deposit. The bank knows you probably are not going to walk away from that unless it as an absolute last resort.
Can you get a mortgage in this market? Yes! The key is to understand what the lenders need to see and then give it to them.
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