The lender begins the process of mortgage loan analysis, looking at the ownership and financing proposal. Using the property address and legal description is assigned an evaluator to prepare an assessment of the property and a title search is ordered. These measures are taken to determine the fair market value of the property and the condition of title. If not, this is the guarantee that the lender must return to recover the loan. If the loan application is related to a purchase, instead of refinancing an existing property, the mortgage lender will know the purchase price. As a general rule, mortgage loans are made on the basis of the value or purchase price, whichever is less. If the value is less than the purchase price, the usual procedure is to require the buyer to make a larger cash payment. The mortgage lender does not want excess loan, simply because the buyer overpaid for the property.

The year was built the home is useful in determining the date of maturity of the loan. The idea is that the length of the mortgage should not survive the remaining economic life of the structure that serves as collateral. Note, however, age is just a part of this decision because the age should be considered in light of the maintenance and repair of the structure and quality of its construction.

Loan-value ratios

The mortgage lender reviews the next payment amount the borrower intends to make the size of the loan requested and the amount of financing the borrower plans to use. This information is then converted into loan-to-value ratios. In general, the more money the borrower puts in the deal, the loan insurance is that the mortgage lender. In an unsecured home loan, the ideal of value-loan from a lender in owner-occupied residential property is 70% or less. This means that property values would fall more than 30% before the debt would exceed the value of the property, thereby encouraging the borrower to stop making mortgage payments. Due to the almost constant inflation in housing prices since the 40s, very few residential properties have been reduced by 30% or more of its value.

Loan-value ratios of 70% to 80% are considered acceptable, but to present the highest risk mortgage lender. Lenders sometimes compensate by charging slightly higher interest rates. Loan-value ratios above 80% at a higher risk of default to the lender and the lender or to increase the interest rate charged on these loans or housing that would require an insurer, such as FHA or a private insurer mortgage, is provided by the borrower.

Funds for closing mortgage payment

The lender will then want to know if the borrower has sufficient funds for the settlement (closing). These funds are currently in a checking or savings account, or from the sale of the borrower’s current property? In the latter case, the mortgage lender knows this loan depends on the other end. If the payment and liquidation of the loan funds, the lender will have to be more cautious because experience has shown that the smaller of their own money a borrower makes a purchase, the greater the probability of failure and exclusion.

Purpose of mortgage

The lender is also interested in the proposed use of the property. Mortgage lenders feel more comfortable when a mortgage loan for the purchase or improvement of property of a loan applicant actually occupy. This is because owner-occupants usually have the pride of ownership in maintaining their property and even in poor economic conditions will continue to make monthly payments. An owner-occupier also realizes that if he / she stops paying, they will have to leave and pay for housing elsewhere.

If the applicant’s home loan to buy a house for rent as an investment, the lender will be more cautious. This is because during periods of high vacancy, the property can not generate sufficient income to meet loan payments. At that time, a bundle of cash by the borrower is likely to default. Also note that lenders generally avoid loans secured by real estate purely speculative. If the property value falls below the amount owed, the borrower can not see the logic in making loan payments.

Finally, the mortgage lender evaluates the borrower’s attitude toward the proposed loan. An informal, like “I’m buying real estate because it always goes up”, or an applicant who does not seem to understand the obligation being undertaken would score low here. Much more welcome is the home loan applicant to show a mature attitude and understanding of the mortgage obligation and which demonstrates a strong desire and sense of ownership.

Borrower Analysis

The next step is the mortgage lender to begin an analysis of the borrower, and if there is one, the co-borrower. At one time, age, sex and marital status played an important role in the decision of the lender to lend or not lend. Often, young and old had trouble getting housing loans, as well as women and people who were single, divorced or widowed. Today, the Federal Equal Credit Opportunity Act prohibits discrimination based on age, sex, race and marital status. Mortgage lenders are no longer allowed to offset income earned by women, even if it is from part-time jobs or because they are women of childbearing age. The house applicant decides disclose it, alimony, separate maintenance and child support must be counted in full. Young adults and single persons can not be rejected because the lender does not feel “put down roots.” Seniors may not be rejected, if life expectancy exceeds the early period of the loan and risk guarantee is sufficient. In other words, the emphasis on analyzing the borrower is now in stable employment, adequate income, net worth and credit rating.

Mortgage lenders will ask questions to the duration of the plaintiffs have maintained their current jobs and the stability of the jobs themselves. Lender acknowledges that the loan will be required monthly and want to make sure the applicants have a regular monthly income of cash in an amount large enough to meet the payment of the mortgage loan and the rest of their expenses subsistence. Therefore, an applicant possesses the skills and the labor market has been employed with a stable employer is considered the ideal risk. People whose incomes go up and down erratically as in charge of sales, this increased risk. People whose skills (or lack of skills) or lack of job seniority in unemployment are often more likely to have difficulty paying a mortgage. The mortgage lender also investigates the number of dependents, the applicant must support their income. This information provides an idea of how much is left to the monthly payments for the house.

Home loan applicants monthly income

The lender is the amount and sources of income of applicants. Quantity alone is not enough loan approval for home, sources of income must also be stable. Therefore, a lender will pay for overtime, bonuses and commissions, to estimate the levels at which they can reasonably expect to continue. Interest, dividends and rental income is considered in light of the stability of their sources. Under the heading “other income” category, income from alimony, child support, social security, pensions, public assistance, etc. is introduced and added to the total applicants.

The lender will then compare what the plaintiffs have been paid for housing which will be paying if the loan is approved. Included in the total project cost of housing are the main interest, taxes and insurance, together with any assessments or home association fees (as in a condominium or townhomes). Some mortgage lenders add the monthly cost of utilities to this list.

A proposed monthly housing expenses compared to gross monthly income. A general rule is that monthly housing costs (PITI) should not exceed 25% to 30% of gross monthly income. A second guideline is that total fixed monthly expenses should not exceed 33% to 38% of revenues. This includes housing payments, over payments car loan payments for installation, maintenance, child support, and investments with negative cash flows. These are general guidelines, but mortgage lenders recognize that food, medical care, clothing, transportation, entertainment and income taxes must also be the applicants’ income.

Liabilities and Assets

The lender is interested in the application of the sources of funds for closure and if, once the loan is granted, applicants have to use the assets in the event of a decline in revenue (a job lay-off ) or unexpected expenses, such as hospital bills. Of particular interest is the portion of the assets that are cash or easily convertible into cash within a few days. These are called liquid assets. If income drops, they are much more useful in meeting the costs of mortgage payments and that the assets that may require months to sell and convert into cash, ie, the assets are liquid.

A mortgage lender also considers two values for the holders of life insurance. Cash value is the amount of money that the insured would receive if you surrendered your policy or, alternatively, the amount he / she can borrow against the policy. The nominal amount is the amount to be paid in case of death of the insured. Mortgage lenders are more comfortable if the nominal amount of the policy equals or exceeds the amount of the proposed mortgage. Amounts are less satisfactory than the proposed loan or none at all. Obviously the death of a borrower is not expected before the loan is repaid, but the lenders to recognize that increases the probability of default. The risk of foreclosure is considerably reduced if the survivors receive the benefits of life insurance.

A lender is interested in the application of existing liabilities and debts for two reasons. First, these issues are going to compete against each month living expenses for the monthly disposable income. Therefore the high monthly payments can reduce the size of the loan to the lender calculates that applicants can pay. The presence of negative monthly liabilities is not all: You can also show the mortgage lender that plaintiffs are able to pay its debts. Second, applicants of the total mortgage debt is subtracted from the total of their assets for their net worth. If the result is negative (owe more than property), mortgage loan application will probably be rejected as too risky. In contrast, a substantial net worth can often compensate for deficiencies elsewhere in the application, as very little monthly income in relation to the monthly cost of housing.

Records of past credit

Lenders consider the request of the history of debt repayment as an indicator of the future. A credit report shows that no derogatory information is most desirable. Applicants without prior experience of credit will carry more weight on earnings and employment history. Applicants with a history of collections, judgments or adverse bankruptcy in the last three years will have to convince the mortgage lender that the loan will be repaid on time. In addition, applicants may be considered poor if the risks are guaranteed the repayment of the debt of another person, acting as a co-maker or endorser. Finally, the lender may take into consideration whether the applicants have adequate insurance protection in case of major medical expenses or a disability that prevents return to work.

When a mortgage lender will not provide a loan on a property, one must seek alternative sources of funding or lose the right to buy the house.

Getting a loan pre-approval from a lender is a quick, easy process. Typically, you fill out a few pages about your financial situation, the bank runs the numbers through a computer approval system, and you’re pre-approved the next day.

So, how do so many people mess it up so badly? Simply put, people lie (either to themselves or about themselves) when filling out a loan application.

We’ll look at examples from customers who applied for owner builder construction loans, but the principles of filling out a home loan application will apply equally well to anyone who wants a loan to buy or refinance a home.

Owner builder construction loans are for individuals who wish to build their own house without having to hire a general contractor. Therefore, they manage the sub-contractors themselves and oversee the project.

However, an owner builder loan application is no different from a standard purchase loan or refinance loan application. Almost every bank across the country will use a form known as a Uniform Residential Loan Application, also known as a 1003.

On this 4 or 5 page form, you simply fill in information about your financial situation. On the first page, you’ll cover simple info about the property as well as information about your address, phone, social security number, etc.

The second page will cover your work history and income. The third page will cover your assets and your monthly debts. All in all, the process is not difficult. In fact, anyone, whether you are an owner builder or someone looking to refinance an existing home, can fill it out without too much difficulty.

Therefore, the mistakes that are seen on owner builder loan applications be due to reasons other than misunderstandings. Indeed, almost every mistake occurs when an owner builder decides to embellish his qualifications or thinks it’s unimportant to be as accurate as possible.

You may be asking yourself why it’s such a big deal. Why should you care if you round off your numbers on the application? After all, it’s just a pre-approval. The bank will collect all of the real paperwork later on.

Here’s an example from a recent owner builder loan. A loan applicant decided the pre-approval was not worth his time to provide detailed information about his financial situation. He rounded up his income and failed to mention the child support payments that he is obligated to make each month.

In the case of this owner builder, the application was pre-approved quickly and easily. Why wouldn’t it be? On paper, everything looked great. But, when the bank started collecting the official income documentation and discovered the child support payments being deducted from the pay stubs, the borrower no longer qualified for the loan.

Not a big deal, right? Wrong. This owner builder had already put money down on a piece of land that he wanted to buy as well as purchased blueprints for his new home he wanted to build. Imagine the frustration and anger he caused himself when he found he was no longer qualified for the loan and he lost the money he wasted on blueprints.

Even though this is an example from owner builder construction, it still applies to anyone filling out a Uniform Residential Loan Application. Imagine you are buying a home and make a large earnest money deposit on the house you want based on getting pre-approved from your bank. Now imagine that your pre-approval is based on inaccurate information that you told the bank. In fact, imagine that you also wasted money out of your pocket for the home inspection and the appraisal.

So, what can you do? Whether you are looking for an owner builder construction loan or any other type of mortgage: tell the truth.

Do not think that embellishing your financial picture will help. It will only hurt you in the long run when the lender discovers the errors. You are better off getting an accurate pre-approval based on accurate information.

And, if you are unsure about your exact income numbers or your exact amount of assets, then estimate conservatively. That way, if your income or assets turn out to be higher than you estimated, you will still be approved and qualified for the loan program you are counting on. It works for owner builder construction loans. It works for refinances. It works for home purchases. It works.

In fact, one great piece of advice is to supply copies of your W2 forms, your pay stubs, and your asset statements when getting your pre-approval. Many customers, not just owner builder customers, don’t want to take the time to do this, because it’s a hassle. But, your loan officer can use these documents to ensure the pre-approval is based on accurate calculations. Besides, you are going to have to submit these documents for underwriting anyway.

For example, a recent owner builder borrower took the time to submit his pay stubs when he applied for his construction loan. A big portion of his income came from bonus pay. It turned out that he could only get credit for the average of his bonus pay over the last two years, in addition to his full base salary. Therefore, his gross income was calculated slightly lower for the loan that he thought it would have been.

In this case, the owner builder fortunately still qualified for the construction loan. However, you can see how miscalculating income can lead your pre-approval to be inaccurate. Therefore, don’t take any chances. Submit your documentation paperwork when you fill out the application.

So, if you are thinking of applying anytime soon for a mortgage for a home purchase or a simple refinance, then take a lesson from the world of owner builder construction loans. Do not discount the importance of providing accurate information about your financial situation on the Uniform Residential Loan Application. The pre-approval is a quick and easy process, but it’s also a very important one. Owner builder construction loans are no different in this respect.