Qualify For a Home Loan

By: EconomyWatch Content   Date: 10 December 2009

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A lending institution evaluates a homebuyer’s ability to repay a home loan in various aspects, particularly his/her background. Applications of many loan seekers are rejected if they do not score well on these aspects. To qualify for a home loan, it is important for homebuyers to have their background at par with the criteria that is established by the lending institution. In other words, the credit-worthiness of loan seekers is the main determinant of home loan approval. 

What is the Criteria to Qualify For A Home Loan?

Here are some eligibility criteria that determine whether loan applicants will qualify for a home loan:

Employment History: The loan seeker is required to have been working with the same company for at least two consecutive years. Lenders do not advance home loans to anyone with an unstable employment history. Consistent employment history works in favor of the homebuyer as lenders will be more than willing to offer you a home loan.

Credit History: Homebuyers, who make prompt credit card payments, are in good stead to get a home loan. Poor credit card history is a sign of inability to repay the loan amount. It is advisable to clear your debts at least six months before applying for a home loan.

Outstanding Liabilities: Lenders insist that a loan seeker should not be paying for liability more than a certain amount of his/her earnings. Generally, 42% is considered as a deadline. The liabilities of a homebuyer may include a car loan, credit card debt, child support or existing mortgages.

Cash and Asset Reserves: A homebuyer is required to provide evidence, indicating the total amount of cash and liquid assets that s/he has. Most lenders would want borrowers to have reserves enough to be able to make monthly repayments for two months. Few lenders may actually ask for reserves enough towards six monthly repayments by homebuyers to qualify for home loan.

Existing Housing Repayments: Homebuyers, who are already making housing repayments in the form of rent, should not have a late repayment history for at least 12 months. Good payment history serves as sufficient proof towards being a responsible buyer. It creates a powerful impression with lenders.


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