Purchasing real estate for commercial, residential or investment purposes is not an easy job. It is a challenging task for a person to arrange for such a huge sum of money. Therefore, most people who are interested in buying real estate properties approach banks for financial assistance.
Banks can help you finance your property after you qualify for a mortgage. That is why banks play a huge role in real estate investments as they can arrange your payment and help you with the purchase. Below are a few key conditions that need to be met in order to qualify for a real estate loan.
This is the most important factor that will help the bank determine if you are a viable borrower or not. The credit score numerically expresses the ability and the willingness of the borrower to repay the debt on time. The bank will base their decision of lending you money only if you have a good credit score. The higher your credit score is, the more chances you have of getting your loan request approved. Late payments and defaulted loans negatively affect your credit score and ultimately lower it.
In most cases, lenders prefer to see the amount of reserves held by the borrower over a period of 3-6 months. The amount can be equal to the mortgage payments of 3-6 months and should be available at all times to be used. A liquid retirement account or savings are some examples of reserves that a borrower can show for loan approval. Greater reserves will make the applicant’s financial position strong enough to get the loan approved.
Another factor that plays an important role in mortgage request approval is the income of the applicant. Most banks would prefer that the mortgage payment each month must constitute 25% or less of the applicant’s monthly income before tax. In case the mortgage payment is higher than 25% of the monthly income, there is a greater possibility of a default or a late payment.
The repayment of debt is an obligation on the borrower. A debt is usually considered a burden until and unless it is completely repaid. The debt to income ratio of a borrower is also an important factor which is taken into consideration when a loan request is undergoing the evaluation process. This is the overall percentage allowed to borrowers out of their monthly income to service their debt. Most banks would prefer borrowers who have a 36% or lesser percentage of debt to income ratio. A greater debt ratio will decrease the chances of the borrower’s loan request being approved by the bank.
Banks are very cautious while approving mortgage loans as it involves a huge sum of money. They have to be careful and alert when approving loan requests. Those who successfully qualify for the loan approval by meeting the criteria given above are regularly checked in order to decrease the possibility of default.
Mark is writing content for Globalserve properties in Cyprus which is a real etate consultant to help you get your property financing in cyprus