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Understanding the Mortgage Approval Process

By Tabitha Naylor

Florida remains one of the major hot spots for real estate investment in the United States. A variety of real estate property is available for sale ranging from single family houses, condominiums, town houses, and luxury real estate to commercial properties including restaurants, offices, warehouses, and retail stores. Due to the increasing demand for housing, the prices of the real estate investments have shot up pushing people to seek additional financial help from banks in the form of mortgages.

Whether it is your first time to purchase real estate property or you have done it several times, the mortgage approval process can prove frustrating if you do not have clear guidelines and proper advice. Some of the mandatory things that you should be familiar with are mortgage rate questions, down payment obligations, and what it means by an updated program guideline. Before applying for a mortgage it is essential to understand the process for applying and obtaining a mortgage. This way you will clearly know what is required and you can begin the first step of collecting the relevant documents. Below are ways to prepare for the application and the mortgage process.

Mortgage Approval requirements

The mortgage approval process is a standard in many states including Florida. In a mortgage contract, the lender provides the loan to the borrower. Lenders give mortgage approvals based on a variety of factors. In order for the borrower to obtain the mortgage approval, they must be able to fulfill the following requirements;

Low Debt to income ration - Commonly known as DTI, this is the measurement of the borrower's income to their monthly credit and housing obligations. If the DTI of the borrower is low this means that they have more income in relation to their debt load. This shows that the borrower is credit worthy and the lender stands a chance of being paid on time in future transactions.

High Loan to value (LTV) - This measurement s used to compare the difference between the requested mortgage amount against the total property value. Certain mortgage programs demand that the borrower make a larger down payment to avoid having to purchase mortgage insurance. Usually government loan programs secure financing for property buyers with at least 96.5% to 100% LTV Ratios.

Good credit worthiness record-Credit ratings are used to determine the risk associated with a particular borrower. Lenders prefer to know the credit score and the financial history of the client to minimize the risk of incurring bad debts. Many lenders require a minimum of 2 years of reports on the debt history of the borrower. Some firms make it easier by issuing alternative forms of credit to allow the borrower to be accepted.

Pre-Qualification Letter Necessities-The mortgage approval process involves acquiring a pre-approval letter from the lender. The Pre-Approval Letter provides the property sellers, and agents with a sense of security and confidence in the borrower. In addition it provides the borrower with estimates of their monthly repayment amounts, down payment, and loan program guidelines.

Items on a Pre-Approval Letter

Total Loan Amount - should contain the base loan amount and possibly gross loan amount (FHA,VA,USDA)

Both the Status Date and Expiration Date - Most Pre-Approval Letters are valid 3 months from when your credit report was run

Mortgage Type - whether it is FHA, VA, USDA, Conventional, Jumbo

Term of loan - contains the number of years fixed, ARM (Adjustable Rate Mortgage); if ARM, 1, 3, 5, 7 or 10 year initial fixed period; Interest Only

Tenure - indicates the type whether owner Occupied, Secondary Residence, Investment

Contact Information - Lender's Name and Address

Terms and Conditions - Document and Funding requirements prior to Approval

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