The lender is also taking a risk, but the mortgage underwriter must be convinced that the loan is a solid deal. They take into account the borrower's credit score, employment, income, the ability to pay the loan, debt to income ratio, appraisal and what they would be able to sell the house for in the near future if it headed into foreclosure into account. The appraisal also reflects the real estate growth of the area. When I was a loan officer there were quite a few 125% LTV loans available, but they were beginning to be on the way out. I didn't think any were still around and I believe they would be very hard to qualify for.
Jay
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