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Getting Approved for a Mortgage When you apply for a mortgage, you are basically using your land or house as collateral for the loan. However, lenders are usually not interested in taking your house. Lenders want borrowers to be able to pay the monthly installments. Thus, before you get approved for a mortgage, the lender will check your financial situation. The lender will determine how risky it is to approve you for a mortgage from your financial background information. Below are some of the things that lenders consider to determine whether or not to approve you for a loan. Amount of Down Payment You Offer Majority of lenders will require you to put down about 20 percent of the value of the mortgage you would like to apply for. However, lenders offer a variety of mortgages. Thus, you can find mortgages where the down payment required is less. However, your financial background will be scrutinized more if you choose to offer a lower down payment. Lenders take the down payment you provide acts as your commitment to paying the mortgage. You can walk away from a mortgage deal and not incur a huge loss if you did not provide a large down payment. This means your risk in the mortgage transaction will be lower than that of the lender.
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If you cannot raise the 20 percent for the mortgage, the lender will require some sort of insurance. The reason for this is to protect themselves from potential losses in case you default payments. Still, there are some specific types of mortgage loans that do not require private mortgage loans. A good example of such mortgages are those tailored of members of the military and their families.
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How Much Debt Do You Have? Your current debt expenses will also determine whether or not you will be approved for a mortgage. Lenders usually refer to this as the debt-to-income ratio. Lenders will want to know the total sum of your recurring monthly expenses before approving you for a mortgage. Examples of these may be child support, alimony, student loans, and credit cards. Apart from this, other monthly expenses such as food and housing will be considered. Generally, your expenses should not total to more than 28 percent of your gross income. If your monthly expenses make more than 30 percent of your gross income, chances are that you will have difficulties paying back the loan. Your Credit Score Your credit score will also determine the amount of mortgage you qualify for. Depending on the credit score you have, you may be classified as either a high risk or low risk borrower.