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The purchase of real estate can usually be regarded as a joint venture between an equity investor and a lending institution. Very few occasions arise where properties are bought for all cash. In most real estate transactions a lender provides a part of the financing, and the property is held as security for the debt. There are two instruments involved when a real estate transaction involves both debt and equity - the note and the mortgage.

A promissory note is a signed document acknowledging the existence of a debt and promising repayment. The chief function of the note is to make the borrower personally liable for payment of the debt. Once an individual has signed such a note, the terms of the repayment schedule must be met regardless of the financial success of the property.

A mortgage is a pledge of security for the repayment of a debt. It is created by formal written agreement in which the person who signs a promissory note pledges the property being financed as security (or collateral) for the debt. Therefore, the mortgage itself is a lien - not evidence of a debt.

Mtg Loan

Rate

APR

30-yr Fixed

6.22%

6.4%

15-yr Fixed

5.9%

6.16%

5/1 ARM

5.9%

Ability to repay the mortgage is determined by verifying your current employment and analyzing your total income. Lenders prefer for you to have been employed at the same place for at least two years, or at least be in the same line of work for a few years. Your proposed monthly payment will be compared to your monthly income and debt .

Willingness to repay is influenced by how you have paid previous loans and by examining how the property will be used. Willingness can be gauged by your > credit report and previous commitments to pay rent and/or utility bills. There is also a greater tendency to stick with your payments if you live in a house as opposed to a rental property or vacation home .

The two key factors lenders use to determine whether to loan you money are your ability and your willingness to repay the loan. The ability is measured by your income and assets while your willingness is measured by your credit history.

It is important to remember that there are no set rules and each applicant is handled on a case-by-case basis. Many applicants come up a little short in one area but make up for it with other strong points . These compensating factors may include a large down payment solid employment extensive educational background or overall financial health.