Money & Career

Personal Finance and Mortgages

Personal Finance and Mortgages

Buying your first house will almost certainly entail using a mortgage loan.

One of the incentives to eliminate credit card debt, or indeed prevent it in the first place, is to make house purchase a real possibility for you.

The better your credit report, the better your chances of obtaining the loan for your dream home, or at least, your starter home.

To many people, there is a great feeling in actually taking possession of your first house.

It is well worth keeping your debt situation under full control, so that when the time comes to apply for a home mortgage, you will be well received by the lender. Or rather, lenders.

You want them drooling over you for your business, so that you are the one to pick and choose, not the lender. That’s what a good credit status can lead to. Aim to enjoy it, and select the best deal available for you.

What is a Mortgage?

A mortgage is a form of secured loan. If you wish to buy a house, and cannot pay in cash (that’s almost all of us), you will need to apply for a loan for the balance between your cash deposit and the price of the property.

What is a Mortgage

That loan, if approved, will be secured against the collateral of “your” property. The lender will hold the title deeds until such time as you have paid back the loan, capital plus interest, in full.

You will then experience that wonderful moment when it is your property, without encumbrance.

That is many years away, but if you keep it in mind, and determine to pay your instalments on time, plus if possible increase your payments regularly as your income rises, then it is a very achievable aim.

Planning to Apply for a Mortgage

When you are planning to apply for a mortgage, it is best to be prepared.

Remember, you are trying to impress upon the lender that you are financially responsible, and that you are fully aware of the nature of your impending commitment.

So, the better prepared you appear to be, the more likely it is that you will impress the lender’s representative.

The chances are you will have an interview, so you should know what to expect, why, and what you can do to make it easier for you and the lender.

Lenders will want to look into your financial welfare, and you must be prepared to present them with the paperwork that they require.

Anticipate well in advance what they will ask for, and take it with you. If you keep having to go backwards and forwards with different information and documentary evidence, it will not create a good impression.

Remember, this is a serious business transaction to the lender, and the interviewer will probably be a very busy person.

Be prepared by having the following documentation ready BEFORE you ever apply for the loan and watch your loan officer smile!

Please note the precise terminology will vary between countries, so please try to relate these terms to those in your home country:

Employment Information

For some borrowers, it will be necessary to provide more than just a W-2 from their employers, to show evidence of income.

If you fall under one of the following categories, you will have to provide the lender with your tax returns for the past two years. If you are:

  • Employed by a relative,
  • Self-employed, or
  • Work on commission, or if
  • Bonuses account for more than a quarter of your income
  • You own two or more rental properties.

If you receive income from other sources, such as child support or disability pay, you must provide proof that you are entitled to it, and in addition, that you are receiving it.

This could be canceled checks, divorce decrees or other contracts.

Finally, if you have been unemployed for 30 days or more at a time, you will probably have to explain why to the lender.

Deposit (Closing Cash)

You will almost certainly have to come up with some cash in order to complete your property purchase.

Be prepared to provide evidence of where that cash has come from. While this may well not be asked for in countries like the UK, it could well be requested in the USA.

In short, you will have to provide documentation for every cent that you use—if it’s above your normal account balance.

For example, if you’ve always had $500 or thereabouts in your account, and then suddenly you have $10,000 in the account to be used for buying the property, you will have to show where it came from.

If it’s a gift, then you’ll have to provide the lender with a letter from the giver explaining that the money was a gift, along with a copy of the check, and in addition, the deposit slip from your account showing the date the deposit was made.

This is to guard against other loans being used to finance the property purchase. The lender is looking for your commitment, and part of that is your cash.

Have evidence prepared for every increase, or large unusual deposit, that your bank statement shows, because the lender will probably require explanations for them.

Credit Issues

Another area of your personal finances that will require heavy documentation is your credit report.

Related: Why is Creditworthiness Important to You?

When a lender considers you for a loan, one of the first things that they willl do is check your credit report. If they find discrepancies or bad marks, they will need an explanation before moving forward.

One way you can speed up the loan process is to have those explanations ready and documented before they even ask.

You can start by getting a copy of your credit report and checking it over.

Are there things that are incorrect? You have to right to contest false statements on your report, but you should be aware that the credit reporting agencies have thirty days to respond to a complaint.

If there are bad marks on your report that are justified, you will have to face them head on. One way to do this is to write a letter of explanation to your lender.

For example, if you were unemployed the prior year and your report shows that you were late two times on your car payment, put the reason in writing and submit it with your loan application.

Remember, the key to a good letter is to show the problem, but more importantly, show the lender how you fixed it, and assure them that it will not happen again.

Your responsible approach and preparation will help you in their eyes. Any attempt to cover up or distort the facts will ruin your chances of that precious mortgage.

These are just some of the things that you can do in advance to make your loan application process go smoother. By being prepared, you have a better chance of succeeding with a loan application, and getting it faster!

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