A key part of a mortgage lender's loan guidelines is how much they are willing to lend in different scenarios. Lender base their loan analysis of a mortgage application on many factors, including: income
assets
property type
down payment
property equity
loan type requested
bankruptcy
credit
One of the most critical areas lenders look at is the equity in a loan. If a person is putting down a large down payment in a purchase loan then a lender is willing to look on this loan more favorably than a similar lender with no down payment or a smaller down payment. In a refinance mortgage the lender will look at how much equity there is in a property. It will compare the total of: current first loan
current second loan
loan closing costs
additional cash taken from the property
This will be the total size of the new proposed loan. The lender will compare loan size to the current appraised value of the property. This is the "loan to value" ratio. Lenders usually offer a wide number of different loans, such as 30 year fixed loans, 15 year fixed loans, interest only loans, etc. For each of these types of loans a lender may have a maximum loan to value (LTV) for different credit scenarios. For people with a credit score of over 720 and who can document all of their income the maximum loan to value ratio may be 100%. The maximum loan to value ratio offered by the lender may decrease as the credit and other factors decrease. A borrower with an identical property, income, and assets but with a credit mid score of 550 may be eligible for a maximum loan to value ratio of only 70%. |
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