The Lender’s Perspective – What You Need to Know

By Mortgage Foxes | Loan

May 10
What is a title company

Lenders are in the business of lending people money because they make carefully calculated decisions based on your risk. They have two expectations:

  1. That you will repay them
  2. That they will make a profit.

To judge if you are capable of meeting these two criteria, lenders look closely at your current financial position and your historical financial situation.

When judging your financial past, lenders will look at:

  1. Credit history. They’ll review the size and number of previous loans and the repayment history on those loans. They’ll also look at your FICO scores and various other raw data.
  2. Income history. What is your profit history on your other investments? Over what length of time? They’ll look at the last three years of income statements and tax returns, your debt, and any legal judgments that may impact your financial standing.
  3. Your experience with loans. Basically, the lender wants to know that you are trustworthy and will hold up your end of the loan agreement. This means you need to be reliable and make good business decisions.
  4. Current holdings and financial situation. Lenders are most interested in liquidity – your cash flow and income.

When lenders are looking at your ability to make a profit, they’ll want to know about your total expenses related to the property.

How much will it cost you to take care of the property?

What will your insurance rates, taxes, and cost of repairs be?

The lender wants to see that you can cover your costs associated with home ownership, as well as their interest charges.

Lenders often want short repayment periods, while it usually more beneficial for the buyer to have longer periods.

Longer repayment periods mean that you can avoid origination fees, additional appraisal fees, and other costs.

When it comes to loans for investment property, a 20 year fixed rate loan is considered a long loan.

Keep in mind that most things in real estate are negotiable, and that your lender can be your partner.

Developing a positive long-term working relationship with your lender can only help you.

Here’s a benefit for working with a Mortgage Broker: Mortgage Brokers interface with many lenders on the borrower’s behalf – so you get the best deal possible.