Have you dreamt of owning a home, but you don’t have enough finances to make your dream a reality? Why don’t you apply a mortgage loan from your bank?
Mortgages make it possible to make large purchases if you don’t have enough cash to purchase an asset just like a house.
Usually, banks offer these loans to the borrower without a guarantee that they will pay back. However risky this may sound, if a borrower fails to pay up the loan, the bank has the authority to take possession of the property. The property is then auctioned by the lender to cover for the losses in incurred.
Mortgages are a type of loans that use property as collateral. Securing these loans from banks will hugely depend on your credit score and your job status. These two factors are considered the main determinants before your lender approves your mortgage application. The loan is later repaid within a certain period of time agreeable by the two parties.
Types of Mortgages
Fixed Rate Mortgages
In fixed rate mortgages, the loan has the same interest rate throughout the repayment period. The lender does not increase the interest rate with the changes in the lending market. Supposing the agreement between the lender and the borrower was to repay the loan within a period of 20 years, the interest rate will remain fixed or constant throughout the entire 20 years. This also applies to the monthly payments the borrower pays in settlement of the loan.
Adjustable-rate mortgages will have an interest rate that changes over time. Typically, the changes in the credit market are reflected in the repayment rate. This type of mortgage is used where fixed rate mortgage is expensive or difficult to obtain.
Usually, this type of loan starts with a fixed interest rate and switch to an adjustable rate afterwards.
Factors that will determine your mortgage approval
As mentioned earlier, your lender will consider your credit score based on your past borrowing before approving your mortgage application. Having a low credit score will make it difficult for your bank to grant you a mortgage. This score is usually between 300 and 850 for most lenders. The higher your credit score the higher your chances of getting approved for a mortgage loan.
Your Credit score will be determined by factors such as your payment history and credit utilization.
If you have long-term ongoing debts, lenders consider that before approving your mortgage application. If the loans will affect your ability to pay the mortgage, then you have minimal chances of approval.
However, if you have a good payment history, you may acquire the loan.
Most lenders consider your total monthly income before granting your mortgage loan. It is not necessary for you to have a high income to qualify for a home loan. However, your income will highly influence the loan amount that the lender will approve.