How Lenders Decide Whether to Give You a Mortgage

Getting access to a mortgage is the most significant hurdle for most people who want to own their home. Even if they believe that they can afford to pay off a mortgage, based on their income and other expenses, they won’t necessarily find a lender willing to approve them. If you want to apply for a mortgage, it’s important to understand the requirements and the process of the mortgage lender in deciding whether to approve you. It may feel like a long and complicated process, but in reality it’s fairly straightforward. Keep reading to find out how it works and what mortgage lenders are looking for when you send them an application. 

Completing an Application 

When you have found a mortgage that you think is right for you, you need to complete an application. You and any co-borrowers need to fill out the mortgage application with your personal details. These will include things like your name, date of birth and social security number. You also need to tell them about your employment, any assets you hold, and many more details. Your lender can help you fill out the application to ensure that you get everything correct and don’t leave out any vital information. This may seem like a long and involved form, but it’s one of the simpler aspects of buying a house. 

What Lenders Do Next 

Once your potential lender has your application, there are lots of things they look at to decide if they are willing to give you a mortgage. They will check your credit report from all three of the major credit companies to see your history. It’s a good idea to do this yourself before they do, so you know what they’re going to find. They’ll look at your salary, savings and investments, and your ability to meet mortgage payments both now and in the future. When you send in an application, a lender might give you a prequalified amount that they could give you. However, this is not approval for a mortgage. It’s only an estimate for the amount that you could borrow if they approve you. If they like what they see when they review your application, they will provide you with a preapproval letter, outlining the terms of the loan and how much you can borrow.

Mortgage

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 Preapproval and Appraisal 

When you have received a preapproval letter, you can start looking for a house with the knowledge that you should be able to finance your home. But when you find somewhere you like, your lender will want to have it appraised. They use an Appraisal Management Company (AMC) to send an appraiser to the home you want to buy and determine its value. They need to do this because the home will act as collateral for your loan, and they need to check that you aren’t overborrowing. If the result of the appraisal is that the value of the home is at or above the contract price, the sale can proceed. 

If you’re worried about applying for a mortgage, it’s much easier than you might think. Although buying a home can take a long time, sending in your mortgage application and waiting for approval are some of the most simple tasks.