Three Essential Parts of a Loan
by Barbara Jennings, CRS/CSS
Collateral relates to the appraised value of your home and how the amount of the loan equates to the value of the home. As an example, a home that is appraised
for $600,000, which has a loan balance of $420,000, is said to have a 70% loan-to-value (LTV) ratio. Lenders generally require a home to be appraised by someone
they approve on first and second mortgages. The rates typically change in increments of 5%. The lower yur LTV, the better rate you will get.
If your LTV approaches 80% or higher, the lender may require mortgage insurance be paid which will raise the payments. The downside is that homeowners insurance
is not a personal deduction to the IRS, but property taxes and interest you pay are.
You probably already know that there are 3 credit reporting agencies (repositories). They are called Experian, Trans-Union and Equifax. But they can be confusing
to the average consumer. They each have a formula for computing the risk factor - otherwise known as your "credit score". What many people don't realize is that the
score your bank, broker or other residential lender runs will be different from the "raw score" from the credit bureau. The credit report merges the scores from
all 3 into one report.
Because the report is a "merged" report it incorporates "weighting". The mortgage history you have gets the primary weight, but they also factor in your credit
history on other types of loans you have had. This is why it's so essential to make your mortgage payments on time. A borrower might have a raw middle score
of 599, but because a mortgage loan is weighted more, a mortgage lender might get a score of 629 on you.
This is another reason why it's important to work with a professional when you apply for a loan, whether a business loan or a mortgage loan. A good professional
knows how to apply and understand these concept for your situation, they can also give you advice and will know the best lenders to submit your application to, if they
are a broker.
Mortgage Loans (part 1)
Barbara Jennings, is a leading home staging and interior redesign trainer. Author of 9 books on decorating, she is one of America's leading experts on
how to start, manage and grow a home staging or interior redesign business.
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