MORTGAGE BASICS - THE LENDER'S PERSPECTIVE

There is certainly much more involved in the process of acquiring a loan than just simply selecting an interest rate.  It is my obligation and sincere desire to guide you through this intimidating process and relieve you of any anxiety that you may have.  If you are a first-time home buyer, I know what your fears are and will be with you every step of the way.  First, let me just say that mortgage lenders are truly not bad people. However, by the very nature of the lending business, lenders must be assured that you, as a borrower, are able to repay the loan they give you to purchase your new home.  As your loan officer and advisor, my primary objective is to help you qualify for the mortgage that is most suitable for your current situation, your residential plans, and even your real estate investment strategies where appropriate.  At the same time, it is my obligation to the lender to whom I submit your application, to ensure that you honestly can afford and are qualified for the type of mortgage being sought.  In essence, I will advocate on your behalf to get you the mortgage that allows you to get your new home.  Having said that, it is important that you understand some of the analysis processes that help me to determine what mortgage products and strategies are best to consider for you.

It must first be determined the amount of cash that you have available for a down payment and closing costs.  There are guidelines that govern the allowable sources of funds for the down payment and closing costs as well as documentation required to verify these funds.

Secondly, the amount of income available to qualify for the loan must be determined.  The sources of that income and likelihood of its continuation must be determined and documented.   The length of your employment as well as the type and stability of your employment are major factors in determining your approval for a mortgage.  Similarly, if you are self-employed, there are equivalent verification concerns. All income used to qualify for the mortgage loan must be verifiable.  Your gross monthly income and your monthly debt obligations are essential to determine the qualifying ratios for your loan approval.

Lenders will look at your credit report and any other credit references to determine how much credit you have been extended, what types of credit are available to you, how timely the payments have been made, and how much your total monthly obligations are.

As a borrower, your obligations must not exceed the acceptable ratios for both the monthly housing payment and the total of all monthly debts.  The ratios consist of housing and total monthly debt ratios.  The housing ratio is calculated by comparing the proposed principal, interest, taxes, and insurance (known as the PITI payment) on the loan for which you are applying to your gross monthly income.  Similarly, the total monthly debt ratio is calculated by comparing the total of all your monthly obligations including PITI, credit card payments and installment loans with your gross monthly income. The acceptable ratios really depends on the type of mortgage you will be place in.  

The final piece to the mortgage puzzle is the difference between the loan amount and value of the property. A property appraisal is conducted to determine value. The higher the appraised value of the property and the lower the price you pay yields the amount of equity you will have going into the property.  Stated another way, value of the home minus the price you pay for it equals the equity you will have going into the home. The appraisers are licensed by the state and base their determination of value on the prevailing market.

There you have it!  These are the essential concerns upon which a lender will determine loan approval.   As your loan officer-- and mortgage advocate, I will instruct you every step of the way to satisfy these concerns and ultimately get you that mortgage.

Frederick W. Ford

Insurance, Mortgage, Real Estate and Retirement Advisor

NMLS#640619

Direct: 888.410.8853

This article is intended for informational purposes only and is not an advertisement nor solicitation.