THE REAL ESTATE MONEY MARKET CHANGES CONSTANTLY. MONEY FOR FINANCING REAL ESTATE MAY BE PLENTIFUL IN ONE MONTH OR QUARTER, THEN SCARCE AND EXPENSIVE IN THE NEXT. LOAN OFFICERS MUST BE ABLE TO FINANCE REAL ESTATE TRANSACTIONS EVERY MONTH IF HE OR SHE EXPECTS TO REMAIN IN BUSINESS. THIS IS WHY LOAN OFFICERS AND BROKERS MUST BE ABLE TO USE ALL THE STANDARD FINANCING METHODS AND ANY UNCONVENTIONAL METHODS THAT MAY FIT THE TIME AND THE SITUATION. ALL LENDERS SET THEIR OWN STANDARDS FOR EVALUATING WHO QUALIFIES AND WHO DOES NOT QUALIFY FOR LOAN MONEY. THESE STANDARDS ARE REFLECTED IN THE INTEREST RATES CHARGED. SOME LENDERS HAVE VERY STRICT REQUIREMENTS, WHILE SOME OTHERS WILL TAKE A GREATER RISK BUT CHARGE A HIGHER RATE OF INTEREST. THIS IS ESPECIALLY TRUE ON 2ND MORTGAGES OR 2ND TRUST DEEDS.
TRADITIONALLY, LENDING INSTITUTIONS DECIDED WHETHER OR NOT A BORROWER WAS QUALIFIED USING THIS FORMULA: THE PROPERTY SHOULD NOT COST MORE THAN 2 1/2 TIMES THE BORROWERS ANNUAL INCOME. TODAY HOWEVER, LENDERS RECOGNIZE THAT THIS METHOD CAN BE VERY INADEQUATE. IT FAILS TO TAKE INTO ACCOUNT OTHER DEBTS THAT THE BORROWER MIGHT BE PAYING OFF. ALSO, IT DOESN'T GIVE THE MIDDLE INCOME PROPERTY BUYER, OR THOSE ENTERING THE HOUSING MARKET FOR THE FIRST TIME, MUCH OF A CHANCE WITH TODAY'S HIGH COST REAL ESTATE.
TODAYS RULE OF THUMB CONSIDER A BORROWER'S OTHER DEBTS ALONG WITH THE HOUSING PAYMENTS. ONE STANDARD RULE IS THAT A BORROWER'S MONTHLY EXPENSES SHOULD BE NO MORE THAN 33% OF ALL TOTAL MONTHLY INCOME. ANOTHER RULE REQIURES THAT THEIR ANNUAL INCOME BE APPROXIMATELY 20% OF THE COST OF THE PROPERTY.
JUST AS THE BORROWER IS EVALUATED DURING THE LOAN PROCESS, LENDERS EVALUATE THE PROPERTY AS WELL. THEY WANT TO BE CERTAIN THAT THE LOAN AMOUNT REFLECTS A FAIR MARKET VALUE. THE PROCESS OF DETERMINING A PROPERTY'S FAIR MARKET VALUE IS KNOWN AS APPRAISAL. AFTER THE VALUE IS DETERMINED, LENDERS WILL LOAN A PERCENTAGE OF THAT AMOUNT. THIS IS KNOWN AS LOAN TO VALUE OR LTV. THE LTV USUALLY FALLS BETWEEN 80% AND 90% AT BANKS AND CREDIT UNIONS. SOME LENDING INSTITUTIONS MAY GO HIGHER.
ALL THE VARIABLES OF OUR CHANGING ECONOMY AND OUR PERSONAL SITUATIONS COME TOGETHER WHEN A BORROWER GOES OUT TO LOOK FOR A LOAN. AS A MASTER BROKER, EMERALD PACIFIC HAS ACCESS TO LOAN PROGRAMS AVAILABLE ONLY TO A FEW. CALL US TODAY FOR A MORTGAGE NEEDS ANALYSIS. 888.370.0123 x202
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