First-time home buyers can be approved for a loan with proper planning

First-time home buyers have many obstacles to overcome when they buy their first home. Mortgage loans, like other loans, are risk based and therefore, a buyer approaching the application process in an uninformed way could lead to a denial of credit. What are the factors a subscriber looks for when approving a mortgage applicant? The short answer is "The Four Cs" of residential loans that are collateral, capacity, capital, and character.

Looking at most first-time homebuyers and methodically going through the "Four Cs" of residential loans, one wonders how a first-time homebuyer gets approved for a mortgage the first time. Let's take a look at each one to see how it may affect the first time home buyer.

Collateral. When buying for the first time from a home buyer, there are generally not too many guarantees. Sure, in home loans there will be a lien on the home, however most first time homebuyers are buying with little or no down payment. The purchase price of the house is the market value, so the first time that the buyer of the house presents few guarantees. As such, the lender has a higher risk in the transaction, First time home buyer maryland.

Capacity. This is the ability to pay the mortgage. The first step is to determine the debt / income ratio. The insurer will take all the monthly debts and divide them by the borrower's monthly income to determine what the debt / income ratio is. Also to determine capacity, the insurer will look at the work history. Does the buyer jump from job to job or sit still? A buyer who skips work can be a greater risk.

Capital. How many liquid assets does the borrower have? Stocks, 401K bonds, I.R.A.s, checking account balances, and savings account balances play an important role in calculating capital. The sum of these accounts is what is called reserves. Insurers often speak in terms of monthly reserves. Monthly reserves refer to the figure of taking the number of reservations and dividing them by the P.I.T.I. monthly. Six-month reserves have become the standard in mortgage loans.

Character. An important factor in obtaining a mortgage loan is the previous mortgage history. The first-time home buyer is at a disadvantage here because there is no mortgage history. The next best factor is the rental history. The borrower's credit history is extensively analyzed to determine character. Delinquencies, the ratio of the balance to the limits of the installment and the revolving credit, the judgments and collections and the bankruptcies are examined to determine the character of the debtor. Also, the number of business lines, as well as how long the borrower has had each business line is a determining factor. After all of these elements are taken into account, the insurer will consider the payment shock. Payment shock is a measure of how much your household expenses increase with your home purchase. If it is too large an increase, the insurer may deny the applicant regardless of whether the debt / income ratio meets the guidelines.