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Getting Approved for a Mortgage When you apply for a mortgage, you are basically using your land or house as collateral for the loan. However, lenders are usually not interested in taking your house. The lender wants you to be able to make the monthly payments. Thus, to determine how much you can easily pay back, the lender will carry out a background check on your finances. From the background check, the lender will determine your borrowing risk. Below are some of the things that lenders consider to determine whether or not to approve you for a loan. How Much Down Payment Are You Offering? Generally, a down payment of 20 percent of the value of the home is required by most lenders. However, keep in mind that there are different types of mortgages available. Thus, you can find mortgages where the down payment required is less. However, if you will be offering a down payment of less than 20 percent, the lender will scrutinize your finances more. By providing a down payment, you are committing yourself to paying off the mortgage. You can walk away from a mortgage deal and not incur a huge loss if you did not provide a large down payment. This means your risk in the mortgage transaction will be lower than that of the lender.
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Some lenders can approve you for a mortgage if you cannot raise 20 percent down payment but can provide private mortgage insurance (PMI). In case you stop paying the mortgage, the PMI will protect the lender from incurring huge losses. Still, there are some specific types of mortgage loans that do not require private mortgage loans. An example of these loans are those offered to military family members.
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Amount of Debt You Currently Have Your current debt expenses will also determine whether or not you will be approved for a mortgage. In the financial world, this is known as the debt-to-income ratio. Lenders will want to know the total sum of your recurring monthly expenses before approving you for a mortgage. Some of the expenses the lender will want to know about include child support, student loans, alimony and credit cards. Apart from this, other monthly expenses such as food and housing will be considered. All your debts should not be more than 30 percent of your gross income. You may find it difficult to pay back the mortgage if your recurring monthly expenses are more than 30 percent of the gross income. Do you Have Good Credit? Your credit score will also be checked so that the lender can know how much mortgage to offer. Depending on the credit score you have, you may be classified as either a high risk or low risk borrower.