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Read MoreLenders face two primary risks over time: default risk (the borrower stops paying) and interest rate risk (market rates rise, making the lender’s fixed-rate loan less profitable). A shorter loan term reduces the lender’s exposure to both of these risks, so they offer a lower rate as an incentive for you to borrow for a shorter period.
Underwriters scrutinize bank statements to:
Verify Assets: Confirm you have enough for the down payment and closing costs.
Identify “Sourcing”: Ensure your funds come from acceptable sources (e.g., savings, gift funds). Large, unexplained deposits can raise red flags.
Assess Stability: Look for consistent account management and no concerning activity like overdrafts.
The loan-to-value (LTV) ratio is a key metric lenders use to assess risk. It’s calculated by dividing your loan amount by the appraised value of the home. A lower LTV (meaning a larger down payment) generally means you’ll qualify for a better interest rate and avoid paying for private mortgage insurance (PMI).
Homeowners commonly use the funds for home improvements and renovations, debt consolidation (paying off high-interest credit cards or loans), funding major expenses like college tuition, or investing in a business. Using the funds for home improvements can also increase your property’s value.
Your loan officer will receive a formal list of conditions from the underwriter and will contact you immediately, typically via email or phone. They will explain each item clearly and tell you exactly what is needed and how to provide it.
