Florida Home Equity Loans: What do Lenders Look for?
In the market for a Florida home equity loan? Understand what it takes to be approved for one?
The lending institution considers your creditworthiness when deciding whether to extend a loan and how much of an interest rate you will pay. This factor boils down to three things:
- Credit history
- Income
- Loan-to-value ratio
Credit history
Credit bureaus collect information about the amount of debt you have and whether you pay your bills on time. They compile this information into a file called a credit report, and then boil all this down to a number between about 300 and 850. That number is your credit score.
Sometimes it’s called a FICO score, after Fair Isaac Corp., the company that pioneered credit scoring.
This article describes how to obtain your credit report and understand it. You can buy your FICO score directly from Fair Isaac. Federal law entitles you to one free credit report per year. The report and the score may be bundled together or offered separately.
Income
Florida home loan lenders want to know how much you make and how long you’ve been at your job, as well as how long you have been working in your particular field. They will look at your total debt-to-income ratio: How much of your monthly income goes toward paying the mortgage, credit card bills, car payment and other obligations, including the payments on the equity debt for which you are applying. Most lenders want to keep that ratio under 36 percent.Be prepared to show your lender proofs of income, such as W-2s, tax returns and other earnings statements, or get ready to be turned down or pay a higher Florida mortgage rate.
Loan to value ratio, or LTV
This is the ratio between what you owe on your house and what it’s worth. If your house is worth $100,000 and you still owe $80,000, your loan-to-value ratio is 80 percent, because $80,000 is 80 percent of $100,000. When you bought the house, calculating the LTV was straightforward: the Florida mortgage amount divided by the home’s price.
It’s more complex when you get a home equity product, because the home’s value probably has changed since you bought it. The lender will get an appraisal of the home’s current fair market value. Then it will add the current mortgage balance to the size of the equity loan or credit line that you want, and divide that by the home’s current value. That results in the new LTV ratio.
Traditionally, equity lenders want to keep your total loan-to-value at 80 percent or less.
But there are lenders that will go higher - even, in some cases, for more than the value of the home. These are called high loan-to-value (high LTV) loans. Expect to pay a higher rate on such Florida home loans. You’ll only get that loan or credit line, though, if you earn enough to afford the monthly payments.
SOURCE: Bankrate.com
