Dealing With a Mortgage Loan Company

March 18, 2009 by  
Filed under Real Estate Investing

When it comes time to find a mortgage loan for a new property you want to buy, many lenders will be very friendly, looking for your business. However, you must always remember they are in the business of making money, and will use you to reach this goal. Even with a discounted or zero home loan rate, they will still profit from lending to you in some way. But before worrying about this fact, you’ll need to assess whether or not you are likely to be approved by your proposed financier.

Home loan lenders will look at each mortgage loan application and determine the applicant’s ability to pay back the debt. If the debt is not repaid, the lender loses money, and this is not very profitable business dealings!

Your past history must be as positive as possible, including your credit history and score found on your report. The underwriter will consider the amount of your past debts, the number of them still in effect, and your history of repaying owed debts.

Current and past income levels will also be accounted for during the underwriting process. Your lender will look at historical income levels and investment activities, current paycheck stubs and the past few years of tax returns. Any outstanding debt such as credit cards, judgments or other issues will also need to be addressed.

Everyone has financial difficulties or strains from time to time, but the most important factor will be your history in repaying debts. Have you ever purchased a home and later defaulted or been foreclosed on? If so, you’ll probably have a harder time getting approval.

Other facts considered that should be to your benefit include the amount of money you are able to put down on the property. Home loan interest rates and chances of being denied increase with the amount of the home you want to finance. 20% or 30% down payments will show you can save and invest your money intelligently, are disciplined, and will qualify you for a lower rate.

Information regarding the home is also taken into consideration. What is the assessed value versus the proposed sale price? The smaller this difference, the less likely the mortgage lender will be to get as excited about the property as you are.

This is what makes it sometimes difficult for new investors to purchase fixer-uppers. If the property is devalued due to needed repairs, you’ll need to prove you have the cash and ability to finish them and increase the value of the property. Some investors choose to take out a second mortgage on their residence to help finance these repairs.

However, if you’re wanting to continually invest in properties, you only need one or two in order to establish a great history with the mortgage company. Lenders will be much more likely to trust in your work and investment knowledge if you have never defaulted on any property they have financed for you in the past.