MORTGAGES LENDERS’ BASIC CONSIDERATIONS IN LENDING

2007-03-08 10:33:40

( Financial )



Various mortgages lenders are offering mortgage services in the financing market nowadays. Before applying with one you must get acquainted with the basic considerations that mortgages lenders follow to approve loans.

Borrowers’ character, capacity and collateral are the three basic considerations set by traditional mortgages lenders to approve loans.

Character

Character is assessed through the data provided in the borrower’s credit report. The credit report shows the credit history as well as the repayment performance of the borrower from previous loans. Negative credit report usually results to loan disapproval.

Non-traditional mortgages lenders such as sub prime mortgage lenders cater to borrowers with negative credit report. These lenders do not totally forego the consideration on the character of the borrower by dispensing the importance of positive credit report. The borrower’s willingness to pay the loan is enough character indication for sub-prime lenders to extend loans.

Capacity

Along with willingness to pay the loan, mortgages lenders consider the borrower’s capability to pay the loan. The cash flow of the borrower must meet the credit obligations net of basic nominal expenses. Borrower’s capacity to pay assures mortgage lenders that the borrower can afford to pay the loan. The monthly income is the primary consideration of the lender since the loan usually is paid in monthly installments.

Collateral

Collateral is the borrower’s assets pledge as security for the mortgage in case of defaults on repayments. It offset the risk of the mortgage lender in case the borrower’s capacity to pay weakens along the period of repayment. Real estate, savings, investment instrument and other tangible assets are accepted as collateral for loan. Mortgages lenders assessed the value of the collateral offered by the borrower, usually real estate, to determine the amount of loan to be approved.

Collateral also serves as a mitigating factor for the borrower to avoid default on repayments so as not to risk losing it. Hence, borrower will be motivated to constantly pay its loan to avoid forfeiture of assets.

These basic considerations in lending share equal importance to mortgages lenders. Borrowers must meet these considerations upon assessment of applications.


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