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Posted on: 02nd Apr, 2008 04:35 am
Getting a home loan/mortgage isn't always tough; what matters is how well you can manage it. There are people who have somehow qualified for a mortgage but sooner or later they have found themselves in a mess! So, first and foremost, you need to check your home loan affordability and then look out for programs on offer.

No doubt markets keep changing, but your personal finance and credit has a big role to play here. There are 3 things lenders will watch out for:
  • Your credit score
  • Your income and liabilities
  • Your down payment
But prior to approaching lenders, check out yourself 11 affordability factors which will help to decide whether it's time for you to take out a mortgage.

1. Are you debt-free?

Have you taken out credit cards, personal loans or an auto loan? If you have high interest credit cards, consider paying them down and avoid using more than 10% of your cards' limit at any given time. However, if you are debt-free, you can possibly go for a bigger mortgage depending upon other factors.

2. Do you save for retirement/children's education?

You may be saving for your retirement by investing into employer sponsored plans like 401k/403b as well as the IRAs. You may like to save for your child's education (Coverdell education Savings and 529 Plan) as well. So, decide whether you're comfortable with managing a mortgage as well as savings plan.

However, if you have too much of credit card debt, pay it off and then start saving for future. Otherwise, managing credit cards, savings and then a mortgage may be quite difficult!

3. How's your credit?

If you're looking for mortgage in a market where borrowing is costly and difficult, then having poor credit will cost you a lot. In such markets, a borrower with a score of 620 is no longer considered creditworthy! At least you should have a score of 680 to qualify for better rates and terms.

Although there are FHA and VA programs for those having poor credit, yet, if you want to get the best program and avoid mortgage problems in future, then wait till you repair your credit and then apply for a loan.

Often lenders take the initiative and work with borrowers in improving their credit scores prior to offering the loan. However, if your score is between 640 and 680, consider putting down 10-15% of purchase price so that some of the best programs are available to you.

As for the credit history, most lenders look for 3-5 tradelines (mortgage, second mortgage, credit cards, auto loan, student loan, store card, gas card, secured/unsecured installment loan etc) in good standing for the past 2 years.

4. Are there enough of cash reserves?

Most lenders will require you to have cash reserves/savings equal to at least 6 months of mortgage payments (PITI) apart from what you'll pay for closing costs and down payment.

However, not all programs (such as the FHA loans) require this but it's better to have some cash reserves so that in case there's an emergency you don't miss a payment and bring down your credit score.

5. Do you expect a raise in your income?

Are you new in the job market or have you been employed/self-employed for 2 years or so? Do you think your income will increase in a few months or so? Check out how much you can borrow at your current income. If you need more, wait till your income gets higher.

6. How much of your income goes into paying off debts?

In order to take on additional debt, you'd have to calculate how much of your income (include all sources of income) is being spent on current debts such as credit cards, personal loan, auto loan etc. This is given by the debt-to-income ratio or DTI.

The DTI = (total monthly debt payment/gross monthly income)
So, the % of income put into paying off debts = DTI * 100

Check out yourself the DTI using Debt-to-income Ratio calculator.

The higher the DTI, the lower are your chances of getting a mortgage because you pose a higher risk to lenders if you're already having a lot of debts to pay for.

7. Do you have an insurance policy?

Are you paying premiums for automobile, health or life insurance policies? Decide whether you can manage a mortgage while paying the premiums. Buying a home is no doubt an important step in your life but having a proper insurance coverage is also worth considering!

8. Are you investing in stocks?

You may like to invest in stocks, bonds, and mix and match options to build up a strong portfolio. However, investment options are subjected to market risks, so it's worth consulting an investment expert in order to get maximum returns. An estimate of such returns will help you decide whether it's worth investing or getting a mortgage.

9. What about home prices?

If it's a declining market with home prices going down, you may like to wait till prices get better. This is because lenders may reduce the loan amount as investors won't provide enough funds.

Moreover, if you cannot pay off the mortgage and decide to sell the home, you won't get enough proceeds because the home value will turn out to be lower than what you owe. Thus, in a declining market, you can't rely on home sales to pay down your mortgage. Rather you'd have to choose options which will have a negative impact on your credit.

However, if you're planning to occupy the house for a long time and your finances are in good shape, you may go for a home that's losing value now as you have the time to wait till prices get higher.

10. Concerned over inflation and Fed rate changes?

Rising inflation and changes in market rates may be some of your major concerns. The Fed often cuts down the rates thereby preventing the economy from recession. But lower rates often reduce the value of dollar thereby raising inflation. So, you need to think whether you can manage a mortgage besides maintaining your lifestyle in the midst of rising prices. If you compare inflation rate over the past few years, you'll get an idea of how much high or low prices will be in the next 5-10 years. This will help you decide whether you can afford to take out a home loan.

11. How does the industry affect you?

The lending industry has been changing with time to keep pace with inflation and economy. With market changes and scenarios like the credit crunch (due to sub-prime mortgage crisis in 2007), lenders have come up with stricter lending guidelines in order to reduce the rising rate of foreclosures.

Due to market changes, certain programs are simply not available. For example, due to the rising concern over foreclosures (in 2007-2008 beginning) and borrowers' inability to pay off loans, lenders have almost stopped offering 100% financing or 80/20 loans.

No doubt, inflation, home prices, fluctuating rates and industry changes have a big impact on your decision to take out a mortgage. But these are external factors on which you don't have much control. So, instead of taking decisions with respect to the external changes, it's better to improve factors that you can control - your personal finance, credit record, debt-to-income ratio and down payment.

If you still cannot decide whether to go for mortgage, Ask Me here.
very nice post and yes im lookin into a fha loan how hard are these to qualify for?
Posted on: 10th Feb, 2009 11:15 am
Hi msnover,

Fha loans are available to the borrowers at a credit score of 580. But the borrowers should not have any late payments or collections in their credit report while applying for loans at such a low credit score.

Posted on: 12th Feb, 2009 09:46 pm
My wife and I have just divided land and sold one lot. We have paid off most of our debt, caught up the rest and are improving credit scores (it was really bad.) We still have our other lot and are trying to build on it. The land is worth $110,000 (what we sold the other land for) and we want a loan for $212,500. We have a cushion of $50,000. We are looking for a lender. Any suggestions?
Posted on: 15th Feb, 2009 07:19 am
Hi merlindcat,

It's good to hear that you paid off most of your debts and also caught up on the rest. This will give a positive boost to your credit report. You have mentioned that you are improving your credit score. What is your credit score right now?

Getting a loan will largely depend on your credit score. Keeping in mind the present market situation, the lenders won't give you loan if you have a credit score less than 650.
Posted on: 15th Feb, 2009 08:54 pm
" We have a cushion of $50,000. We are looking for a lender. Any suggestions?"

with this cushion and with worth the $110,000 land you will surely get a good credit to purchase a new land.but i am not sure about your credit score.because so many lenders will look for it because some of your payments are not on time so surely they will re-look in this aspect.
Posted on: 04th Apr, 2009 07:51 am
I own my home outright with no mortgage. I want to buy a second home in another country. What are my options on getting a first mortgage to finance the purchase of a second home?
Posted on: 18th Apr, 2009 02:10 am
david, you can readily obtain a cash out refinance on a primary residence, and your purpose isn't necessarily relevant. you'll find that there would be a pricing adjustment for the cash out as well as for credit score, depending on what yours is.
Posted on: 18th Apr, 2009 11:05 am
in case the job in whose basis loan was guaranteed is lost before loan is sanctionedis there any chance of loan being rejected?
Posted on: 01st May, 2009 05:39 am
yes, indeed, bestmortgages. loss of a job/income can severely hamper a borrower.
Posted on: 01st May, 2009 08:20 am
"in case the job in whose basis loan was guaranteed is lost before loan is sanctionedis there any chance of loan being rejected?"

It is the sole reason why lenders lend a good sum to those who are having good financial position or having stable jobs i.e.government jobs.

But one must notify the bank when one looses the job so that they can either rearrange the debt for you or cancel it all together.
Posted on: 24th May, 2009 03:39 am
Does there any specific age limit for getting loan ?
Does the age is same in every country?
Posted on: 25th May, 2009 10:50 am
Just found this site, a lot of useful info just reading through all the discussions. I can say outside of this site I did find a free e-book, kind of random, it's a part of a foreign currency site but it gave a break down of all the things you need to look at before you decide to buy or refinance and a worksheet as well. I have been trying to get as much info before I buy in the Phoenix market and outside of this site that book really has helped . It didnt cost me anything and if anything was too much info but i like how there are specific questions on this site as well- thanks for all your information. the book is on a site called "" and then there is a tab for a free mortgage manual its worth a look - thanks again didnt think about the insurance policy or stocks aspects

[External link deactivated as per forum rules]
Posted on: 27th May, 2009 12:26 am
Can I get a mortgage loan at age 52 for 30 years?
Posted on: 27th May, 2009 07:07 am
dan, lenders are not allowed to discriminate based on a variety of factors, one of which is definitely age. yes, you can get a 30 year loan at the age of 52. you can get a 40 year loan if you wish, in fact.
Posted on: 28th May, 2009 11:18 am
please recognize, everyone, that the above poster's recommendation pertains only to properties in the state of texas. i'm sure there may be other helpful information on the site, as well, but it's directed at texas.
Posted on: 01st Jun, 2009 06:45 am
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