Home Loans -
For You
Serving California
Lending Guidelines
Everything about mortgage lending is risk related.
Remember taking an Economics class?
Well, Basic Econ. 101 principles apply to mortgage lending too:
The higher the risk, the higher the price.
The lower the risk, the lower the price.
That makes sense, right?
How do lenders evaluate risk?
There are 4 key factors:
Credit history & credit usage determine your credit scores;
Loan to Value (LTV - the loan amount divided by the value);
Debt to Income Ratio (DTI);
and the Purpose of the Loan.
Your Credit score is indicative of the likelihood of repayment of the new loan.
A 740+ score is Excellent; 700-740 is Great; 660-699 is Good; Scores between 620-660 are average.
Scores below 620 are available but we should discuss which product may work best for you.
Debt to Income Ratio determines your Capacity to Repay:
This is the sum total of all your monthly obligations divided by your gross (pre-tax) monthly income.
Rule of Thumb: A maximum of 45% (up to 49.9% is available) on Conventional loans & up to 55% on Government loans.
LTV & Purpose of the Loan:
LTV: The higher your down payment or equity - the lower the risk.
Purpose:
If you are buying an owner occupied home with 20% or more down payment - Low risk.
A Cash Out Refinance of your residence at 80% LTV- Higher risk.
Cash Out Refinance on a 4 unit investment property with a prior foreclosure or bankruptcy- The highest risk.
The lender will also look closely at the Property itself - Is it a nice house in a nice neighborhood? Great!
A great neighborhood but the house needs work? We can help.
Is it a 4 unit rental property in average or worse condition? Red flag...
Risk analysis is why you have me on your side throughout the transaction.
I know what lenders are looking for on loans, which helps us avoid problems.