Now it is up to the lender whether to approve or disapprove
your mortgage loan application. The home buying lender then
considers several factors like your credit history, employment
history, income, debt etc. to decide whether to approve
your mortgage loan.
Lenders are wise and in business to make money. So they
don’t give you mortgage loans just for free. They charge
you an interest for the home loan they give to you. The
interest rate that you (buyer) pay depends largely on your
credit history and the credit risk you pose.
The total cost of your mortgage loan is usually expressed
as a percentage termed APR-Annual Percentage Rate. The APR
expressed by the lender refers to the cost of your loan
per year.
Getting the Pre-Approval
Before finally approving your mortgage loan and releasing
the funds you may ask the lender to pre-approve your mortgage
loan. Getting pre-approval will give you an idea on how
much home loan you can borrow from your lender. This will
help you with a price range of the homes for which you can
shop around. Pre qualification is yet another process that
normally precedes the pre-approval done by the lender to
decide on your mortgage loan.
Pre-qualification is different from pre-approval. Pre-qualification
is an estimate of the amount of mortgage loan that you can
afford. The lender makes this estimate based on your income
and debt information. Pre-qualification is just an estimate.
It need not necessitate a final approval. Pre-qualification
is just an estimate and is subject to pre-approval.
Only on pre-approval by the lender, the buyer can get an
idea of the exact amount he may get as mortgage loan. This
will help your home shopping process. At the pre-approval
stage, the lender completes the appraisal and title search
as well. In effect he completes all works of an approval
including employment verification and credit checks.
But neither pre-qualification nor pre-approval guarantees
you a final approval and releasing of funds from your lender.
Mortgage Loan Approval
The lender requires certain documents including W-2’s, pay
stubs, income tax returns, bank statements of all your accounts,
child support or alimony and a copy of your credit report
to decide on whether to approve you a mortgage loan. It
is advisable on your part to start collecting these documents
just as soon as you decided to apply for mortgage loan.
Down Payment
The down payment you have to pay depends on the lender and
the type of your mortgage loan. The down payment is completely
different from the final agreed sale price of the home and
the approved mortgage loan amount. If the down payment is
less than 20% of the home price then you have to pay private
mortgage insurance, PMI. This will protect your lender in
case you default on your mortgage loan.
PMI can be cancelled once you acquire 20% equity in the
home.
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