How to obtain a mortgage loan
for a real estate purchase:
Please use this information to help you understand how a potential
lender might determine your ability to obtain a mortgage. There are a variety of
loan programs available to help buyers obtain the right mortgage product and
interest rate. Before you begin to look for a property, it is extremely
important to communicate with a mortgage professional in order to get a complete
and very detailed understanding of how much you can afford and which loan
programs will best fit your needs.
Lenders make their judgment of your mortgage application by by considering
five main points:
(1) Credit History: Lenders generally rely on a comprehensive credit report
that provides a record of how much you owe and how you manage your reoccurring
monthly debt (car payments, credit cards, student loans, mortgages, child
(2) Source of Income: Lenders generally prefer a two-year history of
employment in the same line of work or a verifiable source of income
(investments, stipends, alimony, SSI, etc.)
(3) Income/Debt: Lenders need to determine your verifiable gross monthly
income from all sources and all outstanding monthly debt payments.
(4) Source & Amount of Down payment: The down payment should come from
savings, sale of property, liquidation of investments or retirement plan, gift
from an interested party, or seller contribution. Some lenders provide mortgages
with as little as 0% down, however, a larger the down payment may be required to
obtain a more favorable interest rate or to simply qualify for the mortgage
loan. As you put more down, like 5%, 10%, or more than 20%, different guidelines
are used to determine what kind of mortgage program is best. If you put less
than 20% down (like many homebuyers) some mortgage programs will require you to
pay a small premium each month for Private Mortgage Insurance (PMI).
(5) PITI: Principal, Interest, Taxes & Insurance (for condominiums and
some town homes, the monthly assessment is considered instead of insurance). The
principal and interest are determined by length of time allowed to pay off loan
(15, 20, 30, or 40 years), the interest rate, and the amount of the loan.
Municipal and county governing bodies determine the monthly property taxes. All
lenders require homeowner’s insurance and for condominiums and some town homes
the condominium board determines the assessment.