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The Loan Process is not really as mysterious as it seems;
most people only do several times in a lifetime, so it
seems complicated. When you work with a competent Realtor
AND Lender, they can walk you through the process and
explain each step as you go. The Mortgage Approval Process
has five distinct parts and can be explained with the
Acronym: A. L. I. C. E.
- Assets
- Liabilities
- Income
- Credit
- Equity
ASSETS: determine
amount of cash available for down payment & closing
costs
- Checking accounts, savings accounts
- 401 K
- Investments
Lenders must follow specific guidelines that govern documentation of each asset.
LIABILITIES: amount of financial
obligations … Amount
you OWE
- Mortgage
- Student loans
- Credit cards
- Child support/Child care
Lender must insure that housing expenses
AND total debt do not exceed acceptable ratios.
Interestingly: may not be
in borrower’s best interest
to pay off revolving debt just before applying for a
loan – MAY need cash to close instead. Do not ignore
the debt - pay at least pay minimum.
INCOME – Lender
will help you determine how MUCH income available: Will
evaluate:
- SOURCE of that income
- How LONG it is likely to
continue
- Length of time employed
- Stability of employment
Total MONTHLY INCOME, coupled with
MONTHLY DEBT = debt ratio.
CREDIT – Lender
will evaluate your credit history:
- How MUCH credit extended?
- How TIMELY have payments
been?
- IMPORTANT: ALWAYS pay your housing bill ON TIME!
EQUITY = DOWN PAYMENT …
Difference between loan amount & ACTUAL value of
property
Your down payment is not a COST, but an INVESTMENT in
your own future. This down payment will go directly into
the price of the house and when you sell, you will get
that money back.
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