Steps to Getting the Home You Want

Different Types of Mortgages

Your Credit, Capacity, Collateral and Character

Florida Home Loan Providers

Credit Rating
You will need to have a credit check when applying to buy a home in order to obtain your mortgage. Your credit rating does not have to be perfect for you to be able to qualify for a mortgage. However, credit is an essential first step in your buying process.

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
Most people will have a credit history. This history plus your income will determine your credit-worthiness. Your credit history has been established through any use of credit cards, loan payments such as student or car loans, and even previous apartment or house rentals in addition to other debt payments and bankruptcies.

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
Lenders will calculate with information you provide, your "Debt-to Income" (DTI) ratio. This means your financial capacity to repay your loan. Can you repay your loan plus your regular monthly debts such as credit cards, car loans, student loans etc. and have enough money to still live on. The DTI is calculated by adding up all of your monthly debts and dividing the total monthly debts by your gross monthly income.

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
The real value of the property that you are buying is what constitutes collateral. If you fail to make your mortgage payments, the lender will seize your property and sell it to satisfy the debt. An appraisal will ensure that the home is not worth less than you paid for it and therefore the lender would not incur a loss should you not be able to make your mortgage payments.

Character
The subjective determination of your over-all financial situation formed by your job stability, continued employment and your proven credit history is what is called "character", another determining factor used to grant or to not grant a loan.

Today's Featured Real Estate Article:

Secondary Mortgage Market Sets the Standards and Practices for Mortgage Lending

 by: Syd Johnson

The Secondary Mortgage Market is responsible for the setting many of the rules and common practices that determines who gets a home loan. The secondary market includes Fannie Mae (Federal National Mortgage Association or FNMA), Freddie Mac (Federal Home Loan Corporation or FHLMC), Ginnie Mae (Government National Mortgage Association or GNMA) and a variety of other investment oriented institutions.

These institutions set the standards because they are the ones that will often buy and service your home loan after you have purchased your property. Although your lender handles all of your initial paperwork, there are several well established steps to take your Mortgage out of their hands and into the secondary market where additional fees, manpower and time that will be invested in servicing your home loan for a typical period of 15 to 30 years.

They Lend Money to Your Lender

Once your lender sells you home loan on the secondary market, it frees up the money to make another loan to another consumer looking to purchase their own property. It’s an intricate revolving system that was set up after the depression and refined after the massive Savings and Loans scandals in the 1980’s. It prevents your Mortgage Lender from running out of available cash when they approve lots of loans and assures you that each loan application gets a fair review regardless of the type, size and geographic location of your lender.

How does this all affect you?

Since your loan will spend the majority of its lifetime floating in the secondary market, they institutions involved have setup strict guidelines and requirements that determine what type of information is needed from you before they can work with your loan. All of the guidelines are based to some extent on the systems set up by Fannie Mae and Freddie Mac.

As each lender determines the type of risk they can absorb in the marketing they may work strictly within the guidelines of Fannie Mae and Freddie Mac or they may take a more flexible approach to approving their loans. The guidelines of these Mortgage giants are constantly changing, therefore, it is to your advantage to seek out a reputable company and Mortgage Broker that will fully comprehend them and know how they apply to your particular mortgage file.

Even better, get to know the players and rules on your own. Never be at mercy of a banker or Mortgage Broker again. For information visit the home pages of the following organizations:

Fannie Mae – http://www.fanniemae.com

Freddie Mac – http://www.freddiemac.com

Ginnie Mae – http://www.ginniemae.gov

About The Author Syd Johnson is the Executive Editor of RapidLingo.com, Financial Solutions Website. You can see more articles at http://www.rapidlingo.com. This article may be freely distributed as long as the author's bio is included with an active link to http://www.rapidlingo.com.