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How do Mortgage Companies Work?

Many companies offer potential home buyers the opportunity to take out a mortgage. A mortgage is usually the biggest purchase an individual may make in his or her lifetime. It is therefore desirable and important to find out as much as possible about how these companies work. This may also give you an insight into how mortgage companies make their lending decisions.

When you make an application to a mortgage company, that provider looks at several factors before deciding whether or not to approve your application for a loan. One aspect they look at is your credit rating. However, they also have a number of other criteria against which they assess your application. These criteria often vary between providers, so you may be approved by some mortgage companies but not others. This information is usually not divulged to the public so that the mortgage companies can remain competitive.

Affordability of Payments

One big factor your potential mortgage provider will look at is your ability to afford the repayments on your future mortgage. You will be asked about your earnings and your outgoings when you apply for your loan, so that the mortgage company can work out if your loan repayments would be affordable for you. If they do not believe that you would be able to afford the payments, your application would be turned down.

It is important to be as honest and as transparent as possible when applying for a mortgage. You may well be turned down for the loan if you do this, but it may be the case that you really would not have been able to afford the mortgage repayments. It might be worth looking at a variety of mortgage schemes to work out where you can get the lowest monthly payments if affordability is your main concern.

A mortgage company will also look at factors like your employment type or family situation. For example, it may be more difficult to get a mortgage if you are self-employed as you represent more risk to your lender. Additionally, single people may have more problems in finding a mortgage than married couples, as married couple have the potential for two incomes, lessoning the risk on the lender.

Credit Rating

Your potential mortgage provider will also check your credit rating. This can have a big impact on whether or not you will be approved for a mortgage loan. Every time you apply for some form of credit, this information is entered on your credit record. Mortgage companies can access these credit records and check your history.

If you have missed payments or defaulted on previous credit agreements, this will contribute to a bad credit rating and may affect the mortgage company's decision to grant you the loan you need. However, it need not always prevent a mortgage company from approving your application. If you have occasionally been late with the odd credit card payment, this may not be such a big deal. However, if you have previously had a mortgage, and you have been late on a payment or have defaulted, this is considered to be much more serious and may affect your ability to get a new mortgage.

Most mortgage companies work in similar ways. They need to check if your mortgage payments will be affordable for you and they need to assess how reliable you will be as a paying customer. Your risk to the lender is assessed and has a big impact on their decision to give you a mortgage. However, the precise criteria for mortgage lending can vary between companies.

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