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Getting a Mortgage? - Avoid getting taken advantage of!
6 Steps for Pre-Qualification
Consumers interested in taking a home mortgage loan are afraid of being considered bankrupt only a day or so after their home mortgage has been approved. If mortgage borrowers have a reputation of bankruptcy or foreclosure, it can mean bad credit loans in the mortgage business. Therefore, a borrower with such a derogatory history should not expect to get the same kind of home mortgage loan as a borrower with perfect credit.
Self Pre-Qualification
Your credit Score: Before trying to obtain a home mortgage loan, borrowers should first see realistically just where they stand with their credit rating. Do you belong to the A, B, C or D grades where A stands for perfect credit; B for a bit of tarnished reputation; C fairly bad credit; and D for very bad credit? Scoring models also make a big difference to the borrower: Here, a near perfect score is about 800 with scores getting bad as you reach the 400 mark. Some of these go by names such as FICO, Beacon or Empirica and belong to major credit reporting agencies.
Loan-to-Value Ratio (LTV): Loan eligibility also takes into consideration the ratio between the amount of money borrowed on a home mortgage loan and the real value of the property being placed as collateral. To know the value of new purchases, as a borrower, you would have to consider the lower purchase price of the appraised value. If a home owner has lived on the property for about six months or a year, coupled with refinance, the appraised value can be used in the loan to value calculation. But this distinction can also present problems as when a home worth $100,000 is purchased at a real estate auction for a mere $60,000.00. Credit needed over the mortgage amount is usually made from a cash down payment. When the mortgage available due to limited LTV does not meet the requirements of the sale price of the house in question, family support usually helps.
Debt-to-Income Ratio: You can calculate the debt-to-income ratio by adding all the borrower's debt payments, including the home mortgage loan applied for and any other such as car loans, consumer debt, credit cards etc. Now, divide this number by the net cash available each month for the borrower's living expenses and his debt. Lenders would not prefer this figure to exceed 40%.
Affordability: Having all these calculations at your fingertips, you should be able to judge your borrower's affordability and exactly where he falls in the credit rating system for a home mortgage loan.
Points for home mortgage loan borrowers:
Points for good credit borrowers: If a borrower has a history of bad credit, lenders will charge him more points and higher rates of interest since it is a risk for a mortgage lender to deal with such a person. But borrowers on home mortgage loans with a good credit history should not enter into a mortgage agreement where they are forced to pay points based on a bad credit loan. After all, if a borrower has worked hard to earn good credit, he deserves the benefits associated with having good credit.
Pricing for bad credit borrowers:
To have bad credit often means coughing up a higher rate of interest and origination fees on a home mortgage loan. Usually, points can come to the borrower in several avatars-origination fees, discount fees, broker fees or yield spread premium. Points on a mortgage refer to a fee that is approximately one percent of the mortgage amount. So, borrowers with good credit may often pay as little as nothing while those with bad credit will usually have to pay four or five points. Sometimes, unwary consumers have been asked to pay up to 10 points-something highly unwarranted. In fact, if this happens to you or anyone you know, he should consider it a red flag that someone is trying to cheat you. Of course, the mortgage broker will explain this action by stating he can provide a mortgage where no one else will take the risk.
In such cases, finding a lender willing to help you out with credit may take a little longer for the borrower, but if you are diligent enough with this search, the home mortgage loan will materialize the way you want it.
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