Mortgages lenders look at both borrower and asset before approving a home loan. This means both borrower and collateral (the house) must meet distinct criteria.
The Main 3 Categories:
First, the borrower's prestige scores, income, job history must fit into the mortgage company's guidelines. Most population already know about the importance of prestige scores though.
Secondly, the loan's Ltv. Banks are very sensitive to the number they loan relative to the value (Ltv) of a property. Ltv means "Loan to Value." For example, 100% loans have a 100% Ltv. The borrower is getting a loan for 100% of the property's value. The higher the Ltv the higher the risk. Naturally, banks prefer low Ltvs as these loans normally mean lower risk. Low Ltvs mean lower rates, commonly speaking. The lower the Ltv the less risk of default.
Finally, the asset itself-or the underlining collateral-is the final type bank's recite before approving or declining a mortgage.
For example, a borrower can have excellent credit, be willing to put 50% down (low Ltv) and still get declined because of "substandard collateral." This naturally means the asset itself isn't one the bank wants to lend on.
Examples of substandard collateral:
1) Non-Warrantable Condominiums: This means there are fewer than 50% owner-occupied units within the condo complex. It's busy mostly by renters. For example, if the condo has 100 units and only 20% are owner-occupied is a non-warrantable condo; and therefore more risky in the bank's eyes. Some banks don't lend on non-warrantable condos at all, however most banks will just limit the loan to value (Ltv).
Let's say a borrower qualifies for a 95% loan or an 80/15/5 loan. however with a non-warrantable condo they may only qualify for 85-90%. Bank's typically sacrifice Ltv when there is an inherit risk with either the borrower or the asset itself.
How does one know if the asset is non-warrantable? Just talk to the condo's Hoa population and ask them. Sometimes they won't tell you directly and you'll have to ask the mortgage man to order a condo questionnaire which is the document that states the property's official owner/renter ratio. Some complexes even charge you 0-0 for this document.
2) Properties with Ag Exemptions: Again, banks typically don't lend on a asset with an Ag Exemption. These homes must get financing via farm and ranch lenders.
3) Properties in a declining area: If the mortgage company's estimate shows the asset is declining in value most banks will, again, sacrifice the Ltv-make the borrower bring more money to closing-or not lend at all. Right now there are several "hot spots" in the Us where properties are declining 10-20-30%+. Naturally, these are areas where it's very difficult to get financing because banks don't want to lend on homes that show a declining trend.
Finally, most population think prestige scores are the only issue in obtaining a mortgage or refinance; however banks look at much more.
What is a Non-Warrantable Condo? And How Does This affect the Mortgage?