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8 Basic Things You Should Know before Sending a Loan Application

The mortgage loan documentation has always been a nightmare for the first-timers. The bunch of documents always takes a toll that plays an integral role in determining the lender’s decision. Most of the buyers think that they are bothered by the lending institutions unnecessarily but you must know the importance of all documentation as well as role of different bank statements in processing your loan application.

Principal Amount: The principal amount is the loan amount for which the applicant is required to approach the bank for a mortgage loan. For instance, a person chosen a 2Beds+1 Bath apartment and arranged 20% amount and require the rest 80% to buy a home loan in Redwood city.

Down Payment: Certain financial institutions require a loan seeker who can afford to contribute a certain amount while buying a home which may vary as per their ability and bank’s terms. If you have arranged 20% amount, you can consider this amount as a down payment. Some financial institutions asks for only 15% which will be depending upon your credit history as well.

Down Payment
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Loan Eligibility: After considering the applicant’s gross income and credit history, banks follow their own calculation procedure to derive loan eligibility from the applicant’s net monthly income. For instance, a couple is applying for a loan and earns $5000 and $1000 which sums up to $15000. Now, the bank specified that loan eligibility will be 40-60 times of net monthly income of the applicants. Then, the couple will be eligible for a certain amount (40-60 times of net monthly income) and required to arrange the shortfalls from the other sources.

Co-applicant: When filing a joint loan application, co-applicant should be having a regular income source through any profession or monthly salary which increases the loan eligibility. Banks will consider their clubbed income so that their loan eligibility can be increased.

Co-applicant
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Interest Type: There are two common types of interest rates – fixed and floating rates available in the market. In fixed interest rate, it remains the same for the entire tenure of the loan whereas floating interest rate floats as per the market condition.

Equated Monthly Instalment: This is the amount a borrower has to pay to the applicant every month until the loan tenure. EMI tenure will be determined by the banks according to the applicant’s loan requirements and their repayment capacity.

Components of EMI
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Processing Fees: In order to process a home loan in Redwood City, banks charge a certain amount of fees. A few banks charge nil amount as processing fee whereas others may charge a certain amount as per their own terms.

Pre-payment Charges: When it comes to paying the entire outstanding amount before the tenure end, banks charge a small pre-paying amount. It may also vary banks to banks and the total loan amount. Even when the applicant is planning to switch to another bank, a small cost is involved here for the transferring penalty.

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