Lenders and borrowers alike, there is a document that is the most important one of all to them – the loan application. Without it, all the other documents are useless. More than the figures, it tells a story.
If you’re a borrower, you’re going to need to tell the story. If you’re the lender, you’re going to have to make sure the story is accurate.
A home loanapplication is a document that details all the necessary information a lender needs to know about the borrower. This is where the lenders base whether to approve or decline the borrower from lending.
What do lenders look for in a loan application?
Although not all lenders are created equal, almost always, they focus on the same important areas when reviewing a loan. All these details are present in the loan application. So, as a borrower, you need to make you keep your records accurate.
Let’s break down the things that may impress a lender the moment they see your application, increasing the odds of getting approved.
Your Job, Its History and How Much You Make.
Yes, they have to know all this information. What your job is and how long you’ve been in your current job is important for lenders. Your need to give the most recent two years of your employment history.
Lenders would want to see 2 consecutive years in the same company. This way they can be sure that you’re secured. They have to be certain that you ain’t going to lose your job or you don’t hop from one job to another. Without a steady stream of income, it would be impossible to keep up with mortgage payments.
Your Savings and Assets
Let’s say you have a stable and a well-paying job and then, all of a sudden, you lose it. How are you going to pay for the loan? This is where your savings kick in. You tap on to this account to take care of your mortgage payables until you find another job.
Learn about your net worth. These are the things you own that can be converted to cash or may worth something. Your saving and investment accounts and your properties, subtracted by your financial liabilities is what makes your net worth.
How much of these reserves matter differently per lender. A healthy savings account, however, is what every lender looks at. If they see that your reserves cushion you for the next three to six months, you’re in a better spot.
Your Monthly Obligations and Other Liabilities
Knowing your income and your reserves is one thing, knowing how much is left after all your obligations is subtracted is another.
You can have an impressive paycheck monthly. But if your monthly expenses leave you with a dwindling amount, that could be a serious problem.
Your loan application will be asking from you a list of regularly-occurring liabilities. This is when a lender really sees whether your loan is realistic or not.
Your Credit Score and History
Why is this so important? Your credit score sets the “level of risk” a lender has to take should they choose to lend you money. Your credit history show how well (or “not too well”) you’ve dealt with your debts.
This will establish your worthiness and your ability to repay the loan. With that being said, if you have good credit scores, you have a bigger chance of securing a good loan.
Your score can determine how much interest they place on your loan. A one-percent difference in the interest rate makes a huge difference when translated into the actual amount you pay.
Lenders will require a score of 660 and above for you to avail of favorable terms. Review your credit historybefore showing it to the lender. Any discrepancies must be corrected. If not done, it can drag your scores down.
Have you missed a couple of payments? Could, your score be in better shape? Try working on improving your score and sweeping your history clean first. When you’ve made significant improvements, that’s the time to push through with your loan application.
As a borrower, how you tell your story will make or break your application. To secure the loan, make sure your loan application is accurate and that it tells a good yet honest story. It is the most important document when you apply for a loan.