Would you carry on the study of the mortgage lenders? When a mortgage lender reviews an application for an immovable loan, the primary concern for both the home loan borrower, the buyer, and the mortgage lender is to accept loan applications showing a high likelihood of complete and timely repayment, and to reject requests likely to result in default and subsequent foreclosure. How are decisions made by mortgage lenders?Checkout Bridgepoint Funding, Inc. fha loan for more info.
The mortgage lender begins the process for the loan review by looking at the property and the financing proposed. An appraiser is appointed to prepare an appraisal of the property using the property address and legal description, and a search for the title is ordered. Those steps are taken to assess the property’s fair market value and title status. In case of default, this is the collateral upon which the lender must return to recover the loan. If the loan request applies to a purchase, rather than refinancing an existing property, the mortgage lender will be aware of the purchase price. Home loans are generally made dependent on the appraised value or the purchase price, whichever is lower. If the value measured is smaller than the purchase price, then the usual procedure is to ask the customer to make a larger cash down payment. The mortgage lender simply doesn’t want to over-loan because the buyer overpayed for the house.
Built the year the home is useful in setting the maturity date of the loan. The hope is that home loan duration should not outstrip the existing economic life of the collateral structure. Note however, chronological age is only part of this decision as age must be weighed in the light of the structure’s maintenance and repair and the nature of its construction.
Loan-to-Value Ratios The mortgage lender then looks at the amount of down payment that the borrower is planning to make, the size of the loan being sought and the amount of other financing that the borrower wants to use. The information is then translated into ratios of loan-to-value. In fact, the better the loan is for the mortgage lender, the more money the borrower puts into the transaction. The optimal loan-to-value ratio for an owner-occupied residential property on an uninsured home loan is 70 per cent or less. This means that the value of the property would have to fall more than 30 per cent before the debt owed equals the value of the property, thus allowing the borrower to stop paying the mortgage loan. Owing to the almost relentless inflation in housing prices since the 1940s, very few residential properties have fallen in value by 30 percent or more.
Loan-to-value ratios of 70% to 80% are considered acceptable, but the mortgage lender is exposed to more risk. Often borrowers compensate by paying a bit higher interest rates. Loan-to-value ratios above 80 percent present an even greater risk of default to the lender, and the lender will either raise the interest rate paid on those home loans or allow the borrower to provide an additional insurer, such as FHA or a private mortgage insurer.
Mortgage Closing Settlement Funds The lender would then like to ask whether the borrower has sufficient settlement funds (the closing). Do these funds actually exist in a checking or savings account, or do they come from the selling of the present real estate property of the borrower? In the latter situation, the mortgage lender is informed that another closing is contingent upon the present loan. If the down payment and settlement funds are to be lent, the lender will want to be extra cautious because history has shown that the less a borrower puts into a purchase of his own assets, the higher the risk of default and foreclosure.