Tuesday, August 28, 2012

Ownership Helps Home Loan Approval!

Those who are homeowners have special benefits when applying for a home loan. Lenders tend to like homeowners as clients since they believe them to be low risk borrowers that have other assets from which they can recover their money in case problems arise and they have to resort to legal actions.

Since home loans are secured the requirements for approval are less strict in terms of credit. If the applicant is already a homeowner, the lender knows that he has been able to save enough money to purchase a property, or maintain it if he inherited or pay mortgage monthly payments if he financed the purchase.

What Ownership Implies

Ownership implies that you are a low risk for lenders when it comes to loan approval. It means that you probably have been able to meet mortgage monthly payments before and that you have committed to maintaining a property throughout the years. Homeownership tells the lender that you have a sense of responsibility and that he can trust that you'll honor your obligations.

Summing up, homeownership implies for the lender that chances are that you will repay the loan on time and that there are less possibilities that you will default on the loan. And moreover, if for some reason the property value doesn't cover the whole amount of money owed, there are other assets from which the lender can recover his money.

Secured Loan's Requirements

Secured loans have less requirements because the loan is protected by the collateral and the lender can take legal action of repossession against the owner of the property to recover the amount owed by the borrower. The main consequence of this loan characteristic is that credit score and credit history are not such a deal when it comes to secure loan approval.

The main requirement for loan approval when referring to secured loans is the income of the loan applicant. Being able to afford the monthly payments is not good enough. Moreover, the loan installments cannot be higher than 40% of your income because the lender wants to make sure that the applicant won't sacrifice expenses in order to repay the loan because the loan installments are an additional expense that could be cut if the proper situation rises.

Multiple Collateral

Home owners can guarantee approval and greatly reduce the risk involved in a home loan transaction by offering another property as collateral too. Two assets guaranteeing a loan significantly lowers the risk involved for the lender and gives the applicant an opportunity to get a lower interest rate for the same amount of money.

Being able to offer two or more properties as collateral shows the lender your cooperation towards making things easier for him and will probably get you better terms on your home loans. These are the main reasons why it is said that homeownership has plenty of benefits for those who apply for a home loan. And even for those who are just planning to buy a second home or an apartment but don't want to use their other properties as collateral.

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