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Credit Rating You should be honest with your loan officer if you have had any credit problems. There are many legitimate reasons why persons may have encountered a credit problem. If you dealt with your credit problem and have maintained a satisfactory record for a minimum of one year, you will most likely qualify to most mortgage professionals.
Credit Determination
Again, your credit history is extremely important to a lender as it gives a picture of your payment history and any possible problems. Thus, a credit check is usually the first step in a loan
application process.
Debt-to-Income Ratio, also known as Capacity An example of this would be a proposed mortgage payment of $1200 per month and $600 per month in other debts creating a debt load of $1800 per month. If your gross monthly income were $5400, your DTI would be 33% ($1800/$5400 = .33) A standard guideline sometimes referred to as the "Fannie Mae" guideline is that your total DTI should not exceed 36%, but lenders offer some leeway with clients who may have a large down payment or an excellent credit history. This "leeway" has been pushed to 40% and beyond for someone with good credit, capacity, collateral and character.
Collateral
Character
Today's Featured Real Estate Article: Mortgage Prepayment Penalties - Just Say No by: Jakob Jelling
One of the most common terms found in a new home loan is a prepayment penalty. This type of penalty says that if the borrower pays off the loan early, commonly during the first five years of the loan, then the borrower will be responsible for paying an additional amount of money, typically about six months interest on 80% of the mortgage balance. Sub-prime market loans will typically carry prepayment penalties more than standard mortgage loans. You may plan on keeping the house for the entire duration of the prepayment penalty, and be tempted not to worry about it much. But sometimes life circumstances change, so it's wise to avoid any type of prepayment penalty if you can. A typical prepayment penalty might equal five months worth of monthly loan payments, so it's worth checking on. Of course, you should always ask (before you sign) if a new loan has a prepayment penalty. In fact, ask the lending officer to point out to you in the document where a prepayment penalty is discussed. Most items in a loan are subject to negotiation. If you haven't signed loan papers yet, and you find that your loan has a prepayment penalty, you might offer to pay an additional closing point or so to see if it can be removed. The key at this stage is that if you agree to the prepayment penalty, you should try to find ways to reduce either the amount, the term, or both as much as possible. If you already have a loan, you are bound by the terms of the document, unless you can negotiate them. There are perfectly legitimate reasons why you may want to pay off a note early - most often, due either to refinancing or selling the house. You may be able to contact your lender to see if they will waive the prepayment penalty if they are able to provide refinancing. If interest rates have dropped a lot, and you can't get out of the prepayment penalty, it may be worth rolling that amount into a new loan. And of course, try to get the new loan without a prepayment penalty.
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