Mortgage Lenders Ratios: The Basics

When a homebuyer applies for a mortgage, the lender applies several lenders’ ratios during a financial background check. At Mortgage House, we apply the ratios too. We also use proprietary tools to assess each application efficiently. 

The ratios help our loan specialists gauge the applicant’s ability to repay their home loan. In addition, they determine the homebuyer’s borrowing capacity. Lenders help individuals become homeowners. They also help them achieve other financial goals. 

In addition, lenders must put their clients in positions to succeed. A homebuyer who can barely afford a $500,000 mortgage risks losing any payments they make and the home if something goes financially sideways for them.

The most common lender ratio is loan to value. Lenders use it when an applicant applies for a car loan too.

They take the value of the property and subtract your deposit. Then the lenders look at the amount you want to borrow. If you request a $400,000 mortgage and place a deposit of $40,000, you hope to borrow an LVR of 90%. In the lender’s eyes, that’s a high LVR. Therefore, it’s a high-risk home loan. The risk comes from the amount that you put up front against the amount you need to borrow. The more skin the borrower has in the game, the less risk it poses for the lender.

Lenders Ratios Conclusion

Lenders ratios remain an important part of assessing an applicant’s ability to repay a home loan. Homebuyers can explore the financing options with Mortgage House. Our loan specialists have tools that make the evaluation efficient. Contact us today.

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