Have You Gone Through The Process Of Obtaining A Mortgage
- By: Trevor Price
A home loan is a guaranteed loan that utilizes real estate as to safeguard the indebtedness. Most individuals don't have the cash to pay the entire cost for a home. Instead, they will use a down payment along with a mortgage to purchase a home. Over time, the borrower can pay off the loan in affordable monthly payments. While the loan is in repayment, the lender will place a lien on the house to protect its security interest.
It is also possible to get a second home loan or home collateral credit line. With either of these products, they generally use a second place lien behind the first home loan. After the first lien has been fully repaid, the remaining proceeds of the house may be used for the second lien. In the end lien holders have been fulfilled, the homeowner gets the remainder of the profits.
To get a mortgage, almost all loan companies demand that borrowers meet strict income and home equity requirements before funding the loan. An important idea to understand is the financial debt to income (DTI) ratio. This is where all of the monthly minimum debt payments are divided by the monthly income. If the ratio is too high, the lender will not approve the borrowed funds.
Another primary qualification to get a home loan is the loan to value (LTV). At present, no lender will make a loan that is greater than the present evaluated worth of the home. However, a few loan companies may not go above 60% to 80% of the LTV. Frequently, second homes and investment properties will have a more stringent LTV ratio that is lower than a loan on the owner's principal residence.
In many cases, the main balance on the home loan is not the only thing that is required to be compensated each month. Many borrowers are also required by the loan provider to finance an escrow account for property taxes and home insurance premiums. The bank will pay the taxes and insurance instead of the homeowner. There is a cushion amount above the actual amount needed within the escrow account too.
The monthly payment includes one month's worth of the escrow account, which can add hundreds to the monthly home loan payments. Likely borrowers should remember to include the escrow payment amount when calculating how much repayment will cost.
If the borrower does not make monthly mortgage payments, the lending company can start foreclosure proceedings. In order to avoid foreclosure, the borrower will need to make all scheduled payments in addition to any additional interest and late fees. The further behind a homeowner is on making payments, the harder it is to get out of foreclosure.
Depending on the type of loan and state laws, the lender might be able to pursue the borrower's other assets if the foreclosure sale does not produce enough funds to pay off the loan. Also, a foreclosure is extremely damaging to a credit report. It is almost as serious as a bankruptcy. Borrowers should try to avoid foreclosure.
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