Getting a Home Mortgage Loan

How much can I afford to pay for home mortgage loan?
Borrowers often begin their home search with only the foggiest idea about how much they can afford to pay, which can result in wasted time and frustration.

How do home mortgage lenders decide how much you can borrow?

Home mortgage lenders ask two basic questions about the borrower’s ability to pay. First, is the borrower’s income large enough to service the new expenses associated with the loan, plus any existing debt obligations that will continue in the future? Second, does the borrower have enough cash to meet the up-front cash requirements of the transaction? The home mortgage lender must be satisfied on both counts.






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What are the requirements for documenting income and assets?

The most important of the documentation requirements are as follows.

Full documentation: Both income and assets are disclosed and verified, and income is used in determining the applicant’s ability to repay the mortgage. Formal verification requires the borrower’s employer to verify employment and the borrower’s bank to verify deposits. Alternative documentation, designed to save time, accepts copies of the borrower’s original bank statements, W-2s, and paycheck stubs.

What is a mortgage interest rate?

Take a 6% rate, for example, and assume a $100,000 loan. In decimals, 6% is .06, and when divided by 12 it is .005. Multiple .005 times $100,000 and you get $500 as the monthly interest payment. Suppose the borrower pays $600 this month. Then $500 of it covers the interest and $100 is used to reduce the balance. One month later, when another payment is due, the balance is $99,900, and the interest is $499.50. The interest rate stays the same, but the interest payment is lower because the balance is lower.

What is the down payment?

In dollars, the down payment is the difference between property value and loan amount. If value is $240,000 and the loan is $198,000, the down payment is $42,000.


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