Understanding The Paper Work Behind Home Loans

Written by  //  November 26, 2013  //  Financing  //  Comments Off on Understanding The Paper Work Behind Home Loans

Applying for a home loan so you can finance the beginning of your future is a tedious process. There is a lot of waiting and wondering why there is so much paper involved. Some is created when you apply for a loan. Other pieces come from you and are required by the bank or institution preparing to finance your loan. Is it all really necessary?

Paperwork Required

The lender requires borrowers to bring in several months worth of some documents and at least two years or more of others. These statements are chosen to prove you can continue to finance your lifestyle. Documents they want to see include proof of earnings such as payment slips or statements, stubs from pay cheques, statements of tax returns, and bank account statements. They must be consecutive reaching back as far as lenders expect to see, showing consistent earning and spending habits.

If you are an investor, banking associates need to know all about your portfolio. What are you investing in and how are these stocks or bonds performing? Are you up to your neck in high-risk shares or sticking with blue chip stocks and municipal bonds? Clearly, if you like to take risks on the stock market, yours will be a risky loan to finance.

Why the Third Degree?

It feels like you are going through the third degree when you try to finance a mortgage. Professionals investigate every aspect of your financial life, including your credit rating. They might turn up things even you had no idea about, for the better or worse. What they discover is designed to protect them from the risk of giving you money.

After all, the several tens or hundreds of thousands of dollars you need to purchase a home is coming from these professionals from money invested with them by their banking customers. Not only are they undertaking a risk in business terms, but they are also taking a risk on behalf of people whose money is in savings accounts with them. Their responsibility is to those individuals first, even when regular clients want to finance other ventures.

While holding an account with a bank makes it simpler to engage in other forms of finance made available by them, rules change when you want money.

Banking Paperwork

On top of what you produce, your bank will have some documents for you to read and sign. Before you choose to finance your mortgage with a company, ensure you understand what these forms are and the meaning of sometimes complicated financial language.

Some effort is being made in the industry to simplify banking language for lay people purchasing loans such as mortgages. The vocabulary of finance is like another language to people on the outside.

For now, or even later, if the paperwork is not clear in any way, have it made plain before you sign next to the "x." Once your signature is in place, there is no going back.

These sheets you will be reading and signing pertain to the nature of your loan, the terms and interest rates, what would happen if you could not finance loan payments, and agreements regarding early payments, etc. Right now it seems impossible you would have enough money one year to pay off a percentage of your mortgage, but it happens. Will you be penalized for your good fortune? There is usually room for early payments to a particular limit x-number of times annually.

Some mortgages are also designed to allow breathing room for a period of time if you experience financial hardship. Assume nothing and ask lots of questions, multiple times if necessary. Feeling stupid now is better than losing your home later.

Author Bio
Joshua Turner is a writer who creates informative articles in relation to business. In this article, he describes some of the paper work behind home loans and aims to encourage further study with a NJIT MBA Management Information Systems.

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