What A Florida Lender Looks For

One of the more frequent calls that we get at Capital Lending Corp. goes something like this: "Hello, I'm shopping for a Florida 30 year fixed rate mortgage. What's your best interest rate on that type of Home Loan?"

Before we go much further, we'd like to share a little about how lenders evaluate Florida mortgage applications. The more you understand about how a lender sees you as a Florida home loan applicant, the more successful you will be in getting the Florida Mortgage you want.

It's not rocket science. Lenders making home loans evaluate applicants based upon risk.

Regardless of the credit scoring model they use, lenders are really only interested in making an accurate assessment of how likely a borrower is to repay a home loan.

Considering a pair of hypothetical Florida home loan applicants might make the point easier to see.

Tampa, Florida mortgage Home Buyer applicant #1 has an 737 Credit Score, has worked for the same company for eight years, has 20% to put down, has not made a late rent payment in the last three years, and has cash reserves after closing her Florida home loan to cover six months of living expenses. She wants to buy an existing single family home as a primary residence in an established Tampa neighborhood.

Tampa borrower #2 has a 600 credit score, has changed jobs twice in the last 24 months, has no money to put down, has been reported to the bureaus for late payments on two credit cards, has no cash reserves beyond the Downpayment and has 8k in high interest credit card debt. He wants to buy a condo in a new development and rent it out to a tenant as an investment.

Which person would you prefer to loan money to? Would you loan money to each of them at the same rate and with the same terms?

If you chose applicant #1 and declined the risk associated with applicant #2, you have a good grasp of how lenders see mortgage applicants and why a Florida Mortgage Broker can't give you a rate quote on a Florida mortgage without first getting some answers that reveal how risky your loan is.

The lower the risk, the better the terms and mortgage interest rate that you will be quoted, and the more Florida mortgage programs you will have to choose from.

Although the risk factors that lenders evaluate vary according to the type of loan, here are the most common ones:

Your credit report is a key to how a lender sees your Florida mortgage application

Although the past is not always a reliable guide to the future, it is all that the lender has to go on. In most cases, a borrower's credit report is the most important single factor in getting a mortgage loan approved. It is vital to examine your credit report long before you begin to shop for a home so that you can correct any errors before you face the time pressure of closing by a certain date. When it comes to correcting errors on reports, working with an experienced Florida mortgage broker pays huge dividends.

Your debt to income ratio is another key factor in how a lender evaluates a Florida mortgage application

Debt to income (DTI) ratio is not a difficult ratio to calculate and every mortgage applicant should take the time to get the concept and do the calculation. A Loan Officer calculates DTI by adding all of the monthly obligations of a borrower (car payment, student loan payment, monthly credit car payments, etc.) to the amount of the new mortgage payment (Principal, interest, taxes, and insurance and any homeowners' association assessments) and then divides by the borrower's total monthly gross income.

For example, suppose a Pensacola first time home buyer has a monthly gross income of 6k and current obligations of 1k and wants to take on a Florida mortgage with a PITI payment of 1k including all assessments. The debt to income ratio would be ($2000 divided by $6000) or 0.33 or 33%.

Ideally, lenders like to see mortgage applicants with debt to income ratios below 38%. Again, that does not mean that home loan applicants with higher ratios don't get home loans approved, but the ratio is a key indicator used by Florida lenders to evaluate a Florida mortgage application.

Your assets at the time of application and liquid reserves after closing are also vital to how a lender evaluates a Florida mortgage application

The more money that you have in accounts that you can access easily (checking accounts, savings accounts, money market or brokerage accounts) the more secure a lender will feel about making you a home loan.

A home loan to a Clearwater, Florida borrower with $70,000 in the bank is less risky than making the same loan to a borrower with only $2,000 on hand, all else being equal.

But lenders are not only concerned about how much money you have on hand at the time you apply, they also consider how large a rainy day fund you have in the event that you lose a job or suffer other disruption in your normal monthly income.

The lender will evaluate your level of reserves after you make your downpayment and close your Florida home loan.

In a perfect word, lenders like to see applicants with 3-6 months worth of reserves in liquid form. Specialized programs for First Home Time Buyers often have lighter reserve requirements. Capital Lending Corp. has closed Florida home loans for a variety of borrowers with 100% financing, and reserve amounts that were less than the amounts that lenders regard as ideal.

Your intended purpose for the loan is also important in how a lender evaluates a Florida mortgage application:

Is the home you are buying an investment, a Florida vacation home, or your primary residence?

Lenders never waver from their preoccupation with risk when they evaluate your application. Lenders are generally more comfortable financing a borrower who is buying a single family home to live in than they are making a loan to an Investor who plans to rent the property.

Tenants can leave or get behind, but people generally pay their Florida mortgages when the alternative is losing their homes to Foreclosure.

Your loan to value (LTV) is an important factor in how lenders evaluate your Florida mortgage application

In the good old days, most borrowers put down 20% of the value of the homes they were financing. Lenders love a loan secured by a substantial downpayment because of the lower risk.

Although borrowers and Realtors® think about the purchase transaction in terms of money down, lenders and mortgage brokers look at it from the standpoint of loan to value.

Loan to value is easy to calculate and understand. Take the lesser of appraised value or purchase price on the Florida home that you are intending to buy and divide it into the total amount of the loan.

For example, a Pinellas County couple has a contract to buy a home for 200k. The appraisal comes in at the purchase price. They are putting 20k down. The loan to value on the transaction is the loan amount divided by the Florida home's purchase price. In this case, the loan to value is 180k divided by 200k or 90%. In a perfect world, lenders would like to get LTVs at or below 80%.

The lower the LTV, the lower the risk. The lower the risk, the more Florida home loan options that your Capital Lending Corp. loan pro can create.

The good news: Capital Lending Corp. has options for borrowers who need to borrow up to 106% loan to value.

As you consider buying or refinancing Florida Real Estate, your prospective lender will consider the big picture. As your mortgage broker, so will we.

A great Credit score may compensate for low reserves and a lack of a downpayment. We'll be happy to give you our best rate for a 30 year fixed mortgage once we know enough about you and your situation to make the mortgage quote accurate.

To discuss your unique home loan needs, call Capital Lending Corp. at 1-866-924-4111 or use our online Quick Inquiry form.