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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