
Qualifying for a Mortgage Loan
The three Cs determine if you are qualified and the interest rate you are quoted:
Credit Reputation- everything from the borrower’s credit score and history of mortgage or credit delinquencies, to the status of credit card accounts.
Capacity- includes monthly debt payment to income ratio, cash reserves, whether you’re salaried or self-employed and the type of loan product – fixed or adjustable rate, along with 30-year, 20-year or 15-year terms.
Collateral- takes into consideration the amount of down payment, property type, such as single family home, condo or multi-family, and property us
Some read estate experts are predicting that 2012 will be a year of opportunity for homebuyers. But is that true? As banks develop stricter rules on credit eligibility, many people are finding it more difficult to qualify for a loan. According to the Florida Realtors Association, trouble securing a mortgage was one of the prime factors in limiting a customer from purchasing a new home.
As banks develop stricter rules on credit eligibility, many people are finding it more difficult to qualify for a loan. According to the Florida Realtors Association, trouble securing a mortgage was one of the prime factors in limiting a customer from purchasing a new home.
And what about refinancing? Even with interest rates at record lows, does it really make sense to refinance?
In these challenging financial times, it can be difficult to know which direction to turn for advice on home mortgages. According to Cathy Pirtle, vice president and sales manager for SunTrust Mortgage, the outlook for the housing market in 2012 is definitely a little more positive. With interest rates as low as they are and real estate both available and affordably priced, Pirtle says the timing might be excellent for qualified individuals to purchase a home.
But in today’s economy, who is qualified?
It all comes down to “the three Cs,” says Pirtle. That’s credit reputation capacity and collateral. All three factors not only determine if you’re qualified for the loan, but also the interest rate you are quoted.
Credit reputation refers to everything from the borrower’s credit score and history of mortgage or credit delinquencies, to the status of credit card accounts. Capacity includes monthly debt payment to income ratio, cash reserves, whether you’re salaried or self-employed and the type of loan product – fixed or adjustable rate, along with 30-year, 20-year or 15-year terms. Collateral takes into consideration the amount of down payment, property type, such as single family home, condo or multi-family, and property use.
The type of loan you are seeking will also play a role in any discussion about qualification. Conventional loans, FHA loans and VA loans all have their own variables in requirements, says Pirtle. “There is no one rule of thumb.”
When it comes to refinancing, there are just as many factors to consider. It is never a one-size fits-all approach. “We work one on one with people to review their current mortgage and help them determine the true benefit to refinancing,” says Pirtle.
That includes looking at how long the homeowner expects to retain the home, whether there is an opportunity to reduce the term of the loan and where they can get the most significant savings.
If refinancing doesn’t make sense, Pirtle suggests the option of making an extra payment each year or setting up a bi-weekly payment plan if the lender offers that type of program.
When Lisa Langer, of BB&T Private Wealth Management, advises her clients, she looks at the big picture, taking into consideration all of their financial needs, not just their current mortgage situation.
For example, she says, a client may be paying over a four percent interest rate on their mortgage right now, but it may not make sense to refinance, depending on their personal and professional goals. And for some people, it might make more sense not to refinance, but to liquidate some of their investment holdings and pay off the mortgage altogether.
But before any of those decisions are made, she advises clients to consider issues ranging from how much cash will be required at the closing, to what the appreciation of the home will be over the period of the loan versus the interest they could earn by investing that money instead.
Cash flow is one of the biggest determining factors, says Langer. “Someone who is very entrepreneurial may need access to immediate cash for new business ventures that come up,” says Langer. “Maintaining a mortgage on their home may be more practical rather than paying it off because having available cash is more important to them.”
The bottom line is every financial situation and every client is unique, says Langer. Before making any decision on refinancing or obtaining a new mortgage consult a trusted advisor.
Is Refinancing the Way to Go?
It is never a one-size fits-all approach.
There are many factors to consider:
How long the homeowner expects to retain the home?
Is there an opportunity to reduce the term of the loan?
Where can the most significant savings be obtained?
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