Home loan lenders can be banks or other financial institutions especially ones in which borrowers may have a strong or weak credit history. An individual who wants to buy a home has to be a good credit risk.
Home lenders are responsible for ensuring that the mortgage loan is appropriate for a borrower’s risk profile. They can restrict the borrower’s credit to prevent a risky pattern of borrowing from continuing. These are commonly called forbearance provisions. The borrower must agree to the loan terms that will enable the lender to recover the mortgage loan. The lender may also require that the borrower make monthly payments that the lender estimates will be just sufficient to pay the mortgage loan.
Home mortgage lenders may also require that the borrower purchase a home with a low equity loan (where the loan is less than the market value of the home). In addition, the lender will agree to a sale that has to happen within the term set by the lender.
The rules that apply to home loan lenders are complicated. They often have different requirements for different types of loans.
Some borrowers who apply for a home loan with the same lender are evaluated on the basis of different standards. The lender might give higher marks to a borrower who has only one unsecured credit card and has no outstanding loans. The lender might use a higher threshold for the size of a home mortgage (even if the home loan is a conventional home mortgage), even if the borrower has good credit. The lender might also consider a borrower who has a mortgage interest rate above the prevailing rate that the borrower would pay without the special consideration. Such special considerations might include:
A deduction from the borrower’s income or other expenses for credit card or other household expenses.
Limitation on what the borrower can borrow against their home. For example, a borrower with a $200,000 home mortgage and no credit card debt could not borrow more than $150,000 against the home. A borrower with credit card debt of $200,000 and no outstanding home mortgage could not borrow more than $50,000 against his or her home. These limitations, called qualifying limits, also apply to borrowers with other types of mortgages. Qualifying limits are not available with second mortgages, home equity loans, installment loans, home equity lines of credit, or other debt obligations that depend on the value of the home. For example, if a borrower with a $1,000,000 home mortgage had a credit card debt of $400,000, the borrower would not qualify for the special consideration. Instead, the lender could decide that the interest on the loan would pay for the down payment and other principal payments and still offer the borrower a special mortgage rate. The mortgage insurance premium is still payable for this type of mortgage.
The mortgage insurance premium is the amount you must pay on your mortgage each year as an insurance premium against loss of value from any default. If a lender extends you a loan, the mortgage insurance premium is the amount they will charge. You also may be required to pay interest on the mortgage insurance premium and a guaranty fee to cover the lender’s risk. Mortgage insurance is similar to personal insurance, but the interest and fees are paid to the lender and not to the borrower. As a consumer, you will still have a claim with your bank and a lawyer to settle. If you default on a mortgage, the lender loses its mortgage insurance coverage. This loss of insurance coverage also means you lose your lender protection against lawsuits from your creditors.
Below is a Mortgage Calculator for your convenience. This will give you an idea how much your average monthly mortgage will be once you purchase a home. If you have any questions at all please contact our office. Thank-you!