Each Lenders’ Loan Policies Vary
Mortgage lending is a very important part of the home buying process and each lender has different loan policies. Now, the main type of institution from where you may be able to get a mortgage is the banks. They are the most common, and popular-most organization who offer mortgages to the prospective borrowers.
However, while taking out a loan, you are required to agree to varying terms and conditions (loan policies) of the home loan. Now, these terms and conditions do vary from one lender to the other, or rather from bank to bank. The terms and conditions vary as per the requirements of the banks and the regulations of the institutions.
It is not only the banks, but is true in case of any organization or company who follow their own rules and design the terms and conditions as per their beliefs. So, if you are planning to take out a home loan as per your requirement, it is necessary for you to be aware as to how and why the banks have differing loan policies.
In addition, it is also important for you to be aware of your affordability, and thus you should be able to ask the question to your financial adviser as to how much house can I afford before taking out a mortgage. Depending on this and the terms and conditions of a bank, you will need to choose the right mortgage.
Banks and their policies on mortgage lending
Each person handles a situation in a different way. Similarly, each institution too thinks of a situation differently. So, is the case with the banks. Each of the banks offering mortgages, have totally different sets of policies. They use these policies so as to determine their borrowing limits, the types of mortgages they are going to offer, the people to whom they are going to issue the home loans and what will the interest rates be.
From time to time, the banks adjust these policies, thereby, adjusting the interest rates charged against the borrowers. However, there’s no time limit within which or after which a bank may think of changing their policies and the terms and conditions. It has been seen that there are banks who re-adjust their policies on a frequent basis, while others tread this path rarely enough. During the sub-prime crisis of 2008, most of the banks went forward to getting their policies and terms adjusted.
These terms and conditions do not simply vary, as per the banks but also depends on the type of mortgage the bank is going to lend. The lending limits thus, vary as per your affordability and your credit rating. There are also some lenders who do bend the lending limits as per the requirements of the borrower, depending on the limit of the bank’s affordability.
Some of the most important things that the banks consider in addition to their own terms are the security, the savings of the borrower, if the borrower is an acceptable one, the serviceability or the borrower’s capacity. The serviceability is based on two main things, and these are the Net Disposable Income or NDI and Debt Service Ratio or DSR.
Other than this, the policies of the banks with regards to ending also vary depending on the rules and regulations introduced from time to time, by the federal government. Furthermore, it also depends on the rules of the state that the bank is in.