When you approach a bank for a home loan you need to prepare yourself for a barrage of questions, many of them intensely personal and probing that lay bare all your intimate financial details, and sooner than later you begin feeling disheartened by the loss of privacy, and start questioning what all this is leading up to. But if you sit back and examine your loan request from the bank’s point of view some of the questions seem justified because you would want to know the person to whom you are entrusting your money.
The thrust of any bank assessment procedure would be to determine-
- Whether you have the financial standing and means to repay the loan at a future date by adhering to a fixed repayment program.
- Whether your financial dealings in the past inspire confidence in your solvency and financial clout.
- Whether you are in a position to offer any security tangible or intangible to secure the loan in the event you default the loan.
From the above it is very clear that the whole purpose of the credit assessment and appraisal system is to judge three factors that are pertinent to granting any loan-your income, your credit worthiness or credit standing, and the collateral you can provide to secure the loan. The answers to all these questions will determine whether or not you can afford a home loan.
How does the banker judge your repaying capacity?
Any assessment of your assets and liabilities will tell the banker how efficiently you are handling you finances and whether you have the income and income earning capacity to repay the loan over a longer stretch. An excess of assets over liabilities is a favorable situation at any time. Another favorable factor is possessing cash and investments like mutual funds that are liquid meaning they are easier to access in need. Being in a position to shell out a 20% down payment opens up lower interest rate options and waiver of mortgage insurance premiums.
The debt to income ratio is another important financial parameter. Supposing your income is $5,000 and you have a debt servicing obligation of $500 per month towards a credit card advance. The banker may decide that you can take an aggregate debt obligation not exceeding 40% of your income. Effectively, that means you can afford another $1,500 towards a home loan payment without straining your income. So, $500 towards your existing loan + $1,500 for the new home loan makes available a total sum of $2,000 towards total debt servicing obligations. The banker will then do his math to offer you a home loan that will involve loan payments of $1,500 monthly.
Judging you by your past credit history
Credit reports show the banker how effectively you have repaid past dues, and the banker may insist on a certain credit score or rating before deciding whether you qualify for his best interest rates. Needless to say the lower the score, the more unfavorable the terms of the loan become.
The home itself is the collateral for the loan
You may have all the documents and deeds that prove the home is yours but try defaulting on the loan and you will realize that the banker can exercise his lien by foreclosing the home leaving you on the footpath.
What about your needs once the banker’s requirements regarding income, credit rating and collateral are satisfied?
The banker has already decided what you can afford and fixed the loan amount. What you need to decide is the terms of repayment. At this juncture the banker has already decided your maximum monthly payout ($1,500 in our example). Here it is up to you to accelerate the repayment over a shorter term or to extend repayment in order to lower the monthly payment. Obviously you are free to vacate the home only if you have repaid the mortgage entirely or agree to sell it for a gain.
Making good the down payment once the loan is approved
A home loan involves expenses that need to be paid upfront and fees for title verification and insurance premiums. The loan for vehicle title helps you meet all these expenses without stress. The car equity loan will give you mostly 60% of your car’s commercial valuation. Interest rates usually never exceed 25% APR, and auto equity loan repayments don’t stress monthly income resources. The pawn car title loans are efficient ways of meeting urgent payments and this is a resource that can be exploited favorably while clinching the home buy of your dreams.