How Mortgage Applications Are Approved [mortgageloan-processor.blogspot.com]
Local North Vancouver mortgage broker explains the mortgage approval process for first time buyers
mortgageloan-processor.blogspot.com the mortgage approval process
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When you apply for your loan...what happens next? How do lenders know which loans to approve and which to deny? This article will briefly describe the process that lenders go through when determining to extend credit and approve a borrowers application.
The process involves reviewing your "Three C's" - Collateral, Capacity, and Credit.
Collateral
The first step a lender will take is to look at what you will be pledging as a guarantee in exchange for the loan. With a typical mortgage this is, of course, the home itself. During this step, the lender will take a look at 2 primary components: what the home is valued at and how much of a down payment you are making.
If you are asking for a $ 150,000 loan on a property and the lender determines that the property is only valued at $ 130,000 - there will be a problem.
Likewise, the higher your down payment, the better your chances of 'passing' the collateral phase of your application review.Credit
The next phase of your credit application involves the lender reviewing your credit history and score. If you have a high credit score, have always paid your bills on time, and have a diverse history of successfully borrowing from other lenders: your chances of getting approved are greatly improved.
However, if the borrower has filed for Bankruptcy in the last 7-10 years, has defaulted on previous loans, or has outstanding debts with other lenders, it will be very hard to get approved for a new loan.
Capacity
The final, and arguably most important, phase of your application is your capacity to repay the loan.
In order for lenders to approve your loan, they need some kind of assurance that they will get their money back and that you will be able to make your monthly payments.To do this, lenders look at your income, other debt, and cash reserves. This is why your application must include bank statements, tax returns, and pay stubs so that the lender can verify your income. Typically, lenders will use a standard that says all of your housing expenses (including mortgage payments, property taxes and insurance) cannot exceed 33% of your total pre-tax income. This standard ensures that the borrower should have plenty of income to meet their mortgage payments.
Remember that lenders are in the business of making loans: you are their customer and they want your loan application to be approved as much as you do. If the property is accurately valued, if you have a great history of borrowing successfully, and you have full capacity to repay the loan; there is a great chance that the application will be approved.
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