As you will soon realize, taking out a real estate loan is a complex issue, with many factors you need to consider. This short guide on understanding real estate loans is mostly based on the financial trends and regulations present in Tennessee. Still, from a broader perspective, it is useful for anybody who wants to know more about the requirements and obligations that come with it.

As you may know, a real estate loan, also known as a mortgage, is frequently used by prospective buyers who want to purchase real estate. If your credit balance allows you to take out a loan, you are required to sign a certain type of a contract that legally binds you to repay the loan to the financial institution within the period you have settled beforehand, including any interest and other related outgoings. This document is referred to as the mortgage note.

It is important to understand how you can improve your chances of getting a loan

A mortgage loan is typically the least expensive way to borrow enough money to invest in real estate. Still, it is a significant financial obligation that may seem intimidating if you are not well acquainted with the entire process. So, in this case, ignorance is not bliss, as it is most prudent to be aware of precisely what you are getting into, especially if you intend to buy your first property in Tennessee.

The basics of taking out real estate loans

If you are still not quite sure what the process of applying for a real estate loan looks like, read on to get a general idea of what you may need to do.

You need to check your credit

This should be your very first step, even before you check out available property listings in Memphis, Nashville, or other cities in Tennessee. What good is it to think about whether you want to have a porch or a two-story house if you cannot afford it? So, be sure to obtain a credit report from your bank and schedule a meeting with a financial adviser to see if your credit score makes you eligible for a real estate loan.


There are different evaluation criteria, depending on the credit scoring model. The most applied model is the FICO, which assigns points to your credit score and places your score on a scale:

  • insufficient or poor credit (from 300-649)

  • fair or good credit (650-749)

  • excellent credit score (750-749).


Further on, your credit score is evaluated by considering factors such as your payment history, outstanding balances, credit history, and other information about your financial history with the bank. Having a low credit score does not automatically throw you out of the real estate loan race, but it may influence several essential factors such as the size, interest rate, and eligibility to take out certain loans.

Be sure to check your credit before you decide to take out a real estate loan for a property in Tennessee

Now that you know your credit score, the best way to explore your options is to contact your real estate loan adviser and see which of your financial decisions were sensible and which were not. The advantage of doing this either with an expert or on your own is to see areas where you could improve your credit score. Just be aware that you should do a credit check early on in the process of applying for a mortgage so that you can improve your score in good time.

Checking your credit in a detailed manner may show in which areas you can improve your credit history

Pay Off Debt

The most prudent and possibly the only way to improve your credit score is to improve your debt-to-income status. The financial institution from which you are borrowing the funds will compare your assets and liabilities to assess whether you are eligible to take out a home loan. Most lenders do not approve loans to parties that are in debt over 36% of their income. Sometimes the allowed limit may be even more stringent. In general, lenders look for one of the two debt-to-income types:


  • Front-End Ratios: This ratio includes housing costs; the proportion of total income spent on various household expenses.

  • Back-End Ratios: This ratio includes other types of expenditures, such as credit card debts, car loans, student loans, etc.

Your income, savings, and outstanding debts all have an impact on your credit score

As we have said, your outstanding debt has to satisfy specific standards for the lender to grant you the real estate loan. Accordingly, you need to pay off any previous loans that may decrease your credit score. Reducing your monthly expenses will also improve your credit score by increasing the number of available funds on your balance.

Your work history can improve your chances of getting a loan

Even if your credit score is not perfect, there are ways you can compensate and show the lender that you will be able to pay your monthly fees regularly. If you have had a steady job for at least two years, this can be a favorable recommendation for your loan grant. Other details of your work history also factor in, such as whether you served in the military or whether you switched jobs frequently, but also if you cleared off your student debts.

Essentially, your employment history is crucial as it shows to the lenders whether you have a steady source of income and if it is likely that it will stay like that in the future.

Final takeaways

So, you have chosen to move or relocate to your own home in the most neighborly state in the US. You can't wait to spend your weekends hiking and climbing the Smoky Mountains, hanging out in Memphis, the capital of rock-n-roll, or simply enjoying the unique nature and architecture that this great state has to offer.

Of course, if you are yet to settle here and still have not finalized your real estate loan with the bank, it will take some time until you can call your new house a home. Taking out a mortgage loan is, at times, a lengthy process due to several stages of consultations, meetings, and paperwork.

What will definitely help you minimize the stress that may accompany this process is partnering with a reliable real estate agent. They can guide you throughout this procedure, as well as help you find your dream home in no time. So, while understanding real estate loans may seem challenging, finding the right financing option can be a breeze if you have the right assistance.


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