Fundamentals of Loan Qualification

Wednesday, May 4 @ 09:05 AM
Charles Mouse - financial expert

Normally, the release of the loan from the main stream lenders takes 30 to 45 days to complete. However, in some cases the duration is shorter, depending on the type of loan, the lending institution and the type of financing requested. Basis for loan qualification are the following:

Appraisal of Property: Most of the lending institution evaluate and assess the property for collateral to make certain that the property is worth the loan granted. It will safeguard the amount of money released for the loan, for the recovery of the money in case the property should be resold for the default in payment of the borrower.

The Condition of the Property: Some lending companies require the borrowers to recondition the property before approving as the collateral for the loan.

Credit History of the Borrower: Credit run will be done by the lenders to check on the history of the borrowers. This will aid the lenders to find out the degree of the risk they are taking by granting that loan to the borrowers. Lenders are very cautious in taking the risk.

Debt-to-income ratio of the borrower: Your month income has a vital role in determining and considering your loan application. Lenders will evaluate your capacity to pay through your debt-to-income ratio. The obligation that appears on your consumer credit report is your debt. The two ratios that lenders will consider are:  first, your total monthly debt not including your monthly payment for the loan applied for divided by your total monthly income. The second is the total monthly debt including your loan repayment divided by your monthly income. Every lending institution has a set of loan application program; either of the two ratios should not exceed the percentage allowed.

Down Payment of the borrower: Most lenders do not allow the down payment to be borrowed. Proof of funds for the down payment is usually asked of the borrowers. This may be a bank statement with three month’s worth of the down payment amount, or other documents that show the borrower had the funds.

You should be prepared to provide the lenders the required financial documents you had put together. Lenders check this out before granting the loan. To impress the lenders have a loan package put together in case it will be required.

Putting together your financial document, there should be a cover letter to start with. The letter will provide the lender the information about who you are, why you are requesting a loan, and why you had chosen them.  Discuss also the time of interest rate you would like, the terms of the loan, the adjustable-rate mortgage.  The cover letter should also give a brief description of the property, how many units it has, whether you intend to occupy it or not, and its purchase price. Do not discuss your financial needs or the details on how you will spend some of the loan proceeds in some luxury. Determine the type of financing that is best for you, if you had difficulty determining the kind of financing you need  or what is best for you, provide enough information to the lender on your plans for the property. The loan officer will be able to help you determine the best type of financing for you.

The succeeding pages should include a table of contents of everything included in the

Package, a Balance Sheet to show listing your assets, liabilities and capital with the Statement of Income and Expenses, brief employment history for the past two years, stating the name of the company you had work for, your position, your wages, your employer’s name and phone number and the duration of your employment at that particular job and in that field of work. Include also a copy of your credit report not more than 2 months old, copies of three months’ bank statements, a copy of your most recent pay stub, copies of your last two years’ W2s and copies of your last two years’ tax returns. If you are going on stated income, then you won’t need all of this information, but it is a good idea to have it organized and ready just in case. Your loan package will depend on the different properties and through different times, but having all of this information ready will not only better prepare you for the loan process, but it will impress the lender and speed up the loan process.

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