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Loaning money is at the heart of a bank’s business. But to stay in business, the bank must do it carefully, lending it to people who can be trusted with it.
A bank will establish your “trustworthiness” on numerous grounds, most obviously on the basis of your finances. The three key determining factors are your income, your credit record, and your assets and liabilities.
The rule of thumb used at present for borrowing money is that your monthly mortgage payments should not exceed 28 percent of your gross monthly income. If you have other indebtedness—car payments, credit card balances, student loans, or others—the total of those installment debts plus your mortgage payment should not exceed 36 percent of your gross income. In calculating income, the bank will be concerned not only with your salary or average weekly paycheck, but with all sources of revenue, including stocks, bonds, trusts, income from part-time employment, child support, and real estate.
If you are confident of a substantial increase in your income in the near future (for example, if your business has grown at a constant rate for each of the past five years), the projected future income is also an argument that can be used to persuade a bank you are a good risk.
If you have previously applied for and been granted a mortgage and have subsequently paid some or all of it off, you are a better risk than someone who has never borrowed money in his life. Other evidence that you are a good credit risk are a prompt payment history on previous personal loans, credit cards, and department store bills, and the timely liquidation of other indebtedness.
The lender will be calculating not only what you owe but also what you own. Do you own your car? Another house? How about other valuable belongings? Stocks and bonds or other liquid assets? Are you vested in a retirement plan?
If you own or control a business or have substantial financial resources of your own, you may already have a relationship with a particular bank. Try to use it to your best advantage. If you get the feeling you are not getting your due, go to another bank and make it clear that you are interested in not only a loan but might also be interested in shifting other business their way as well. It might help.