A mortgage is a kind of guarantee for paying a loan or financing, for example, in a financial institution, which is usually contracted by an individual or legal entity. It is worth mentioning this guarantee is operationalized through the offer of an asset, which is generally agreed upon between parties through a property. In this way, a type of “insurance” for the creditor is established. Suppose the debtor does not correctly honor its commitments agreed upon when closing the contract, becoming a defaulter. In that case, the creditor can take over the referred mortgaged asset to settle part or even the total amount of this debt.
The mortgage meaning still generates many doubts in people. So, when discussing what a mortgage is, clarifying each peculiarity is essential to understand what it means. You can then offer this property as collateral for the loan to the bank. In this case, notice that the bank’s risk is now much lower. Because, if you become in default, the bank can execute the guarantee through the sale of the property that covers, in excess, the total amount of the loan.
What Do Lenders Usually Focus on When You Apply for A Loan?
Loan providers cling to the 3 C’s, cash, credit, and collateral. Cash means you have enough of it for the down payment and closing costs. Good credit means you have borrowed money in the past and made payments in full. Warranty is the security your home represents for financing. Lenders want to make sure the home you buy is worth enough to cover what you borrow. If the borrower’s financial burden is too significant, there is a risk that he will not be able to repay all his loans and the mortgage regularly. The client must have money left for food, utility bills, taxes, and other obligatory expenses.
Reasons For Rejection
Most often, problems in obtaining a mortgage arise from the owners of a “gray” business, who, at the same time, cannot make an initial payment of 50% of the cost of an apartment. Moreover, as a rule, such difficulties arise with every third client in the elite and business segments: they are afraid to show the bank a lot of documents, thus reducing the risks of relations with the tax authorities. However, income is not why the borrower cannot count on a mortgage. “In general, banks are loyal to such borrowers, offering programs for them on two documents without proof of wages.
You can also provide a certificate of income in the form of a bank. It also happens when borrowers overestimate their capabilities – asking for too much credit. In such a situation, the bank may approve a smaller amount based on the analysis of the borrower’s income.
Credit History
The primary record of credit histories provides only information about the bureau of credit histories, in which the credit history is stored, but not the credit history itself. Poor credit history can lead to a mortgage being denied, so it’s good to double-check ahead of time to ensure everything is in line. However, everything is somewhat more complicated: 91% of all banks rely on information from main bureaus. The rest are used only by small banks in the regions; these bureaus can be called small-town ones. A person’s credit history can be in any of these bureaus, one or several at once. To find out where it is, you should use the bank’s central catalog of credit histories.
Dealing With Credit Mistakes
To get a complete picture, you need to check all the bureaus that contain information about a potential borrower. “The fact is that sometimes the data in different databases turns out to be different. These are banal errors, but they can be a reason for refusing a mortgage. For example, some customers regularly paid on their consumer loans. But when his credit history was checked, which was in three bureaus at once, the information turned out to be completely different: according to one of the versions, there were no delays in payments; according to another, the wait was up to 30 days, and in the third case, it varies from 30 to 60 days.
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