The 5 Most Important Things to Understand About Mortgage Loans

In a recent NerdWallet study, 75 percent of Americans identified purchasing a home as their top priority. With these findings, the study also identified issues like financial independence, soaring property costs and the intricacies of the buying process that often relates to insider knowledge of how brokers and loan agents use tools like a mortgage CRM (customer relationship management tool) to break down the market and consumer data. Here are the five most important things to understand about mortgage loans.

1. Consumer Stability

Consumer stability is absolute in determining mortgage loan credit trustworthiness. Most notably, most loan companies start with a credit report to get a better sense of lifestyle choices and character traits. Is a borrower a spender or a saver? Do they have any capital or collateral?  When you understand how mortgage brokers utilize a CRM to compare and contrast each component, you have a better idea of how to apply:

  • Evaluate credit report for score, debt and inconsistencies
  • The higher a credit score, the more likely an approval
  • Remember that this is a business transaction, so be professional in all dealings

2. Debt-to-Income Ratio

Lenders will calculate any debt-to-income ratio while applying for loans because the banker will want to ensure a borrower can afford the monthly mortgage payments along with any other debt. To do this, add up the monthly financial obligations and divide it by the gross income. A higher debt-to-income ratio increases a lender’s risk. For example:

Mortgage $1,100 + auto $200 + debt $500 = $2,200 / Income $6,600 = 33 percent

3. Savings and Loan Amount

Lenders want to invest in savers instead of spenders, so make sure there is money put away regularly as it shows they are responsible financially. Having a down payment also reduces the monthly loan payment, interest rate and overall mortgage qualifications.

4. Mortgage Types

The type of mortgages people qualify for is based on income and creditworthiness:

  • Fixed rate mortgage: Offers same interest rate over lifetime of the loan
  • Adjustable rate mortgage: Has low initial rate but adjusts annually
  • Conventional mortgage: Offered by private loan companies
  • Nonconforming mortgage: Does not meet Fannie Mae and Freddie Mac standards
  • Reverse mortgage: Homeowners use home equity as loan security
  • Balloon mortgage: Borrower makes a large payment at the end of the loan’s term
  • Interest-only mortgage: Borrowers only pay interest payments
  • Combination mortgage: Two loans from the same financial lender
  • Government-backed mortgage: The government acts as a guarantor for a borrower

Always compare their interest rate and annual percentage rate (APR). The interest rate accrues on loans while the APR measures the mortgage cost that includes broker fees, closing costs and interest rate.

5. Credit Line Potential

Do you know what the credit line potential is with every lender? Understanding the loan amount a person qualifies helps prepare for a higher down payment or evaluate some of the issues that lower a person’s credit line approval. It will also help borrowers prepare better and avoid many of the drawbacks that they experience because they didn’t research their options or consider how a mortgage would affect their income and debt.

As the lender, it is vital that you learn about the mortgage process from the lender’s perspective in that people must meet specific criteria to qualify for a loan which these five elements will help.

 

Share this post:

Leave a Comment