How to Qualify For a Mortgage
Mortgage is a type of loan used to purchase a home or other real estate. It is typically repaid over 15 to 30 years, and uses the property as collateral. A mortgage lender will review a potential borrower’s credit history, income, debt and assets before approving the loan. Some lenders specialize in different types of mortgages, and may offer a range of options depending on a borrower’s financial situation.
Purchasing a residential property requires a large sum of money that is difficult for most families to save all at once. A mortgage is a way for prospective homeowners to buy their dream homes by depositing a portion of the property’s price up front and borrowing the remaining amount. Each month, a portion of your mortgage payment will go toward the principal balance and interest. Interest is the cost of borrowing the money, and will increase over time as you pay down the principal balance.
When you apply for a mortgage, the lender will want to look over your bank statements, tax returns, pay stubs and details of your debts. Having these documents ready ahead of time can help speed up the process. The lender will also need to run a credit check and verify your employment history. They will also ask for a copy of the property survey to make sure you are buying the property you think you are.
Lenders usually charge a fee to originate your mortgage, known as an origination fee. These fees can vary from lender to lender, but are typically included in the closing costs for your loan. Other lender fees include a property appraisal, flood insurance and title service fees. The fees for these services will be listed on your loan estimate, so you can prepare for them in advance.
If you’re not the primary borrower, you can use a co-borrower to help qualify for a mortgage. The co-borrower will sign on the loan, pledging his or her interest in the home as collateral. If the borrower fails to repay the loan at the agreed-upon terms, the co-signer will be held liable for repayment.
A letter of explanation is a document that addresses red flags on your mortgage application that could derail the loan approval process. Some examples of reasons you might need a letter of explanation include a recent job change, issues with your credit report and past due debt payments.
There are many types of mortgages available to qualified borrowers, including VA and USDA loans that are more affordable thanks to lower down payment requirements and no monthly mortgage insurance payments. Your mortgage officer can walk you through the different options and recommend the right one for your needs.