Avoid Real Estate Frustration By Understanding Lenders

Unless you are sitting on loads of cash when it comes time to purchase a house you will most likely need the assistance of a lender to make the purchase.  While most banks do try to get you the mortgage you need you should keep in mind that to them it is just business.  It is necessary to be aware that even though they may be friendly the best interest of the bank will always trump your needs.

Determining can or cannot repay the loan is pivotal in the lenders judgement since they make their money by charging interest on the loan amount.  By examining your past credit history a lender can make a decision on how likely it is that you will be able to repay the mortgage amount.  The lending institution is trying to forecast the future by researching the past just like a historian would but your present situation with have some bearing.

By looking at your credit history banks are able to learn about your past.  Part of your credit history are items such as the number of loans you have received in the past and the size of those loans.  Banks will also be looking at your repayment history on those loans.  Were you behind on payments and the number of times, was the loan repaid in full and do you have any money owing on any loans?.  All of these will be added together to come up with your credit score. The greater your score the greater your chances of getting the loan you need.

While the existence of credit scores are something that many people are aware of banks often look at other factors.  As an example they may review other investments and loans you have to see how much profit a lender made from them.  They can also discover if you have had any legal judgements against you that will adversely affect your capability to repay the loan amount.

The home you are looking to purchase is also a big part of the equation.  The appraised value of the property will be compared to other factors and evaluated.  First they will want to know how much you will be putting as a down-payment since most banks will not loan you more than 75% of its value.  This percentage could be higher, however, if you are able to get mortgage insurance which will help to shield the lender in case you default on the loan.  To give an example of this if you are in Ontario and you want to purchase Burlington real estate you would normally need 25% of the purchase price as a down-payment, however you could still be able to get a Burlington mortgage if you also purchased mortgage insurance from a company like the Canadian Mortgage and Housing Corporation or CMHC.  Second they will look at the purchase price of the home.

Knowing what the expect when you are applying for a loan will assist you in being better prepared when you are house hunting.  Banks are in it to make money but that does not mean that they are not willing to work help you.  At the end of the day everything is negotiable so that both parties can benefit.