Archives September 2021

Qualifying For A Bigger Mortgage

A bigger mortgage may not always be the most financially prudent decision. Factors that a lender considers while giving a loan are as follows:

Stable Income: Most lenders will look at your income over a certain period of time. They are more interested in looking at your stable income. For salaried personnel, this could mean their fixed salary and bonuses if these are stable in nature. For the self-employed ones, the bankers will scrutinize the tax returns over a period of time to find out the stable income. Most lenders have a maximum lending limit that is a percentage of this stable income. The larger your stable income, the larger mortgage you can avail.

Cut Down On Additional Debt: Lenders will look at the free cash flow that you have. They call it your disposable income. Every small loan that you take cuts down your free cash-flow. So, the car loan and the vacation loan all act against your ability to take a bigger mortgage. If you are in a position to pay them off in full, please do the same to increase your borrowing ability.

Clean Credit Score: A good credit score improves your chances of getting a bigger mortgage. The formula that calculates the maximum possible borrowing also considers your credit-worthiness. Ensure that you pay your bills on time. Credit scores are not built overnight.

Bigger Down Payment: A bigger down payment reduces the risk of the lender. It also means that you have been prudent enough to save money to make the payment. Most borrowers will finance a bigger loan in the Loan to Value ratio (LTV) ratio. …

How Credit Reporting Works

Our society lives and thrives on credit. There are more and more lenders offering loans to different people. Many of these loans, such as credit cards and personal loans, are unsecured. This means that the lender is offering loans based on the reputation of the borrower rather than the number of assets he has as collateral. It is therefore essential that they have the required information before they make their decision. This information is provided in the form of a credit score.

Lenders Collaborate: Almost any loan that you take can be traced back to a few lenders. Thus, all the lenders have most of the information, amongst themselves, they need regarding lending the money. It is for this reason that they have set up credit bureaus. It is in their interest to submit information about every transaction with every borrower. The aggregated information gives the prospective lender a good idea about the creditworthiness of an individual. Every lender works for it and gets the benefit.

Periodic Reporting: Lenders report periodically to a third party organization. Usually they report every month or so.

Point System: Instead of considering the vast variety of information that a credit report may bring along, lenders usually look at a score. The point system has been well developed and provides the lender a good idea of the creditworthiness of an individual. For every favorable credit deed, such as paying bills on time, there is a positive score. Similarly, for every negative deed there is a negative score. This point system ensures that lenders do not have to deal with complex information.

Differential Interest Rates: People with good credit scores get the rewards in the form of lower payments, while people with bad credit scores are penalized.…