Whether you want to call it a cabin, a camp or a cottage, when the temperatures begin to soar, the dream of sitting in your own property at such times is irresistible and will not stop you from acquiring your own cottage. But if you do not have the cash to purchase one outright, you will have to borrow some money. While the process of applying for a mortgage and being qualified are the same, the lender will look at other variables when assessing properties before being lend money to purchase a cottage. The qualities that lenders look for when you apply for a cottage mortgage include:
The payment history is perhaps one of the most important qualities on a creditor’s list. A pattern of late, missed or slow payments can work against you. Your ability to make payments is determined largely by your income as well as other competing debts. Furthermore, there is the willingness to pay. Even with high debt-to-income ratios, against all odds there are people who manage to make their payments right on time. Therefore, an unblemished record of payment can offset partially negatives elsewhere. According to statistics the payment history accounts for 35% of the entire creditworthiness.
Length of the credit history
You cannot change your age. Nevertheless, you can start on the path of creditworthiness at an early age by opening up a Visa account and paying faithfully off the balance every month. But be careful and avoid borrowing money needlessly, borrow if it makes sense such as a car loan. A 2 year track record of making payments on-time will greatly increase your standing among mortgage lenders.
Proof of income
Even in an era when freelancing and contracting is widely accepted; as long as you have proof of an income you are most certainly going to receive an ear from a potential mortgage broker. You will have shorter discussions with loan officers. An income acts as a good security against future mortgage payments.
Percentage of credit you are using
In the eyes of the underwriter, pushing your credit limit is a grave sin. It is better to have 2 accounts at half limit levels than a single one that is maxed out. Some experts allege 30% is the perfect debt-to-limit ratio on an account, so you may consider juggling 3 cards if that is what it takes.
It is also advisable to have a mix of different credit types. For example have credit cards, mortgages and car loans. A diversified mix is evidence of someone with a lengthy credit history.
Assets help to offset the lenders fear of risks. It is often pledged as security for repayment of a loan that is forfeited in the event of a default. And the higher the value of the asset the more attractive it is to the lender. When the loan is repaid back in full, the lender has no more lien over the asset. Nevertheless, a property that is leveraged at 95% is more worrisome than one leveraged at 80%.
The property being acquired
While the strength of the borrower is important, lenders will consider the property being acquired when determining the amount of loan they are willing to offer. The lender will consider the location- its proximity to major markets, modern infrastructure, consistent and safe water sources and more. All these will have a bearing on the value and marketability of the cottage.
Recent efforts to obtain more credit
It offers the wrong signal if your request for loan is preceded by several credit applications elsewhere, particularly if you were successful. The question that rises is whether you can pay off the mortgage if you are already financing a new car? The process of rapidly expanding your credit can be a signal of desperation. Furthermore, it is a sign of a potential downward debt spiral especially if your income is not sufficient to pay off the bills.