Obtaining a Mortgage Loan in a Tough Economy

During the current economic turndown obtaining a mortgage loan to purchase a house is more difficult than it once was however it is still doable. But it will require more effort, knowledge, and research on the part of the borrower.

When considering an applicant for a home loan, mortgage lenders compose a financial picture of the applicant and they use this information as a basis for granting or refusing the loan. However, to improve your chances of obtaining a mortgage loan, you should research and do this yourself prior to approaching a lender.

The first very important piece of information mortgage lenders review is your credit score. If this is above 740, you have no worries. Although there is no specific number that all mortgage lenders agree on, most institutions admit that they favor those above 700 and are very reluctant to grant a loan to an applicant whose score is below 600.

And your credit score is also used to determine the interest rate you will pay on your mortgage loan. This is an important factor to consider as you will be paying this interest for fifteen to thirty years depending on the term.

Another item of financial information that will be considered is your income/debt ratio. The primary goal of mortgage lenders in granting loans is to be sure they will be repaid. And they believe that loan applicants are better able and more likely to repay if their total debt does not exceed thirty-eight percent of their income.

So if your gross income (before taxes and other deductions) is $4,000 a month, your monthly payments for a car, credit cards etc. together with your anticipated monthly mortgage payment should not exceed $1,520.

You can easily compute your income/debt ratio. Simply add up all your payments such as credit card payments, car payment, and other loan payments and divide the total by your gross income. For favorable mortgage loan consideration, you should come out with no more than 20%, but the lower the percent the better.

Mortgage lenders also consider the amount of your down payment. The larger the down payment you can make the better your prospects for obtaining a mortgage loan will be. And with a very large down payment, such as twenty percent of the selling price or above, you can often obtain a mortgage loan with a less than stellar credit score and/or a higher income/debt ratio.

Job stability is important too. You should have been in your current job for at least two years with excellent prospects of being retained in the same location. And this information will be verified with your employer.

So if you assemble all your data and approach prospective mortgage lenders knowing where you stand financially, this will impress the individual who interviews you and work in your favor. Personal judgments on the part of the interviewer do play a part, even though small, in mortgage lenders decisions to approve a mortgage loan.