Before granting a mortgage loan, there are certain key factors that a bank or other type of financial institution will take into consideration. Aside from specialty loans, like mortgages for veterans, there are several standard criteria that apply to getting a loan. It is important to meet the necessary eligibility criteria in order to improve your chances of qualifying for the mortgage.
1. Credit Record
If you are black listed, you will not qualify for a mortgage loan. If you have a bad credit score or history, it is unlikely that a mortgage loan will be granted. A good credit record will improve your chances whereas an ideal credit record will ensure that you meet this criteria for eligibility.
It is therefore important to take steps to repair your credit record, take care of any outstanding debt and settle as much debt as possible before applying for a mortgage loan. If you are a first time home buyer and have no credit record, it is advisable to apply for a credit card and other forms of credit at least 3 months prior to applying for a home loan or mortgage.
2. Employment
You need to be employed in order to apply for a mortgage and provide details of your current employer as well as your employment history. You will also be required to provide proof of income in the form of payslips for a period of at least 3 months prior to application.
If you are self-employed or cannot prove an income with payslips, you may be able to provide bank statements detailing your income as well as tax records. Unfortunately, most banks and financial institutions will not grant mortgages to self-employed individuals.
3. Down Payment
A financial institution will require a percentage of the mortgage amount as a down payment. Generally, around 20% of the purchase price of the property will be required. However, the higher the down payment, the more likely it will be that a mortgage will be granted. Larger down payments also mean lower monthly repayments, less interest and therefore more affordable mortgage loans.
4. Price Range
A mortgage lender may take into account your expenses relative to your income in order to determine how much you can afford to repay on a monthly basis. You should take the time to calculate the mortgage that you are able to afford and apply for a loan that does not exceed this amount. Financial institutions are unlikely to award loans in an amount that you will not be able to afford to repay.
5. Security
Apart from a down payment, offering some type of additional security may increase your eligibility score. For example, you can offer an asset as collateral although this is uncommon as the property being purchased naturally stands as collateral. In other words, the bank holds the deed for the property therefore owning it until the entire mortgage amount has been settled.
You can also ask a person of good financial standing to stand surety for the mortgage or cosign the loan. This a common practice for first time home buyers who often have their parents cosign a loan. The person standing surety or cosigning the loan will become responsible for the repayments or even the full amount should you default on your financial obligation to the mortgage loan provider.
None of these factors are taken as a stand alone criteria and are rather taken in conjunction with one another to determine eligibility for a mortgage loan. In other words, if you score low on one eligibility criteria you can make up for it in another area like providing a larger down payment or providing surety.
