When it comes to getting a mortgage loan that matches expectations, some people can be disappointed. But, there are genuine reasons why strict limitations exist, most of which are actually beneficial.
We all want to get the best possible mortgage loan so that we can purchase the house we have been dreaming about. We are not foolish enough to think that we can get any amount we wish, of course, and know we are accepting a strict undertaking to make monthly repayments. But it is equally true that, at times, loan lenders do not quite see eye to eye with the loan limit we have calculated we can handle.
This imbalance can be confusing but there are actually very real reasons why lenders have set lower than expected limits. And while we may feel a little aggrieved not to get the amount we figured on, here are four reasons why accepting their limits to mortgage loans is a wise decision.
Realistic Repayment Terms
There is a tendency for prospective home buyers to convince themselves they can handle a larger repayment sum than they actually can. With every mortgage loan made, the borrower is expected to make their payments on time, and avoid defaulting. For that reason, lenders calculate the most likely repayment sum manageable, not the highest possible repayment before settling on the loan limit.
Statistics have shown that 30 per cent of a monthly income is the acceptable limit to mortgage loan repayments. If more than that percentage is spent on a mortgage, then the home owner is likely to develop financial problems, putting the loan itself at risk. So, if a buyer has a monthly income of USD5,000, for example, then they are not expected to handle more than USD1,500 per month.
It can sometimes seem that we are capable of making greater payments than the sum calculated by the lenders. We may feel, for example, that we can handle repaying USD2,500 per month, but the fact is that three of four years into the future our situation may change.
If a home owner was to lose their job, for example, the pressure to find the extra USD1,000 per month may be too much, whereas a mortgage loan requiring the lower repayment amount would be more manageable. In the interests of debt management then, and avoiding any unforeseen hiccups, accepting the safer loan limit is best.
There is also the factor that lifestyle expenses can grow in the future too. When the mortgage loan limit is calculated, there needs to be a buffer sum that can absorb any increases in living costs. For example, it is always possible that a health problem will mean time in hospital, bringing costs to the table that cannot be ignored.
Of course, credit card debt could also increase due to a variety of reasons, but the strain that it can put on meeting mortgage repayments can be acute. Understandably then, loan limits have to be conservative so as to allow for the extra demands in life to be handled too.
Trust the Experts
Finally, there is no reason why those making the calculations should want to set mortgage loan limits that are unnecessarily low since it is through these loans they make their profits. It is actually in their interest to set the highest limit possible, but it is counter productive if the borrower cannot repay at some time in the future.
A cautious approach towards setting loan limits is the wisest approach then, and with that in mind, their judgement should be trusted. After all, limits to mortgage loans are designed to keep both borrower and lender financially secure.