Factors to Consider When Looking for Home Loans


The biggest mistake one can make when applying for home loans is obtaining one without doing enough research about it. Always remember the fact that a mortgage puts your property on the line.

A single miss in your mortgage payment can easily put you at risk of losing your home. At the most, it only takes three misses in payment and the foreclosure process will start.

Many people are placed in a bad credit situation because of their failure to keep up with their mortgage payments. The common reason is the ballooning of interest on mortgages with variable rates. As the years pass, the borrower finds himself in an obligation that is way beyond what his income can afford. This often results to foreclosure and sometimes even bankruptcy.

Therefore, the importance of choosing the right home loan cannot be taken for granted. Before signing up for a home loan, you need to be sure that you’ll be able to keep up with the payments until the end of your loan’s term. This is why a mortgage loan with a fixed rate of interest is recommended rather than unpredictable variable rate loans.

Factors to Consider

What are the factors that must be considered when applying for a home loan? First of all, the status of your credit score will make a big difference on the rates and fees that you can avail. Most lenders that offer the best rates require an outstanding credit history from the borrower. Thus, it is wise to check on your credit score before submitting a home loan application to your preferred lender. Ideally, those with a credit score of at least 620 will be considered as excellent loan candidates.

Another factor to consider is your current financial standing. Most lenders will take a look at your “debt to income” ratio before granting an approval. If you currently have unpaid bills in your account, this may not be the best time for you to acquire for a home loan. Don’t risk losing a property you’ve just brought because you were not prepared to take on a new payment responsibility. To calculate your debt to income ratio, add up all your monthly credit and divide it by your salary. Multiply the result with 100 and the answer will be your income to debt ration. If it’s beyond 40% of your current salary, lenders would impose higher interest on your home loan.

The Importance of the APR

If you do have good credit and a low income to debt ratio, then certainly you are ready to obtain a home loan. When comparing mortgage lenders, don’t just concentrate on the interest rate of the loan.


It’s best to compare the APR since this does not only calculate the interest rate, it also includes other fees that comes with your loan such as the origination fee, processing fee, discount, etc. Some loan lenders may offer an attractively low interest but if you don’t look closely, you may be surprised that the other costs make up for the low interest rate.

Lastly, always read carefully and understand the contract of your home loan because signing up this piece of paper means you are bounded by its terms and conditions.

Allison May is a credit consultant and a writer for Credit Creators. The resource provides consumers with valuable advice and information on credit cards for bad credit,credit cards for good credit and other credit-related issues. Its main objective is to help people build good credit. Copyright © 2008

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