A blacklist in real estate refers to a list maintained by lenders that contains names of individuals or entities flagged for mortgage application fraud or possessing poor credit history, aimed at avoiding issuance of loans to untrustworthy borrowers.
Borrowing capacity, also referred to as loan eligibility or credit capacity, determines the maximum amount of funds that an individual or entity can borrow from a lender. It is calculated based on factors such as monthly income, existing liabilities, credit score, and financial assets. Understanding borrowing capacity is critical for making informed financial decisions and optimizing loan approvals.
A commitment letter is an official notification from a lender to a borrower indicating that the borrower’s loan application has been approved, detailing the terms of the prospective loan.
Compensating factors are criteria used to enhance a borrower’s creditworthiness by considering elements beyond the standard qualifying ratios. These factors help lenders make informed decisions when traditional metrics don't tell the whole story.
A conditional commitment is an agreement by a lender to provide a loan to a qualified borrower, subject to specific conditions that must be met. It serves as a binding commitment from the lender, provided that all pre-stipulated criteria and terms are satisfied.
A credit score is a numerical expression that represents the creditworthiness of an individual, predicting the likelihood that the individual will default on a loan based on their credit history.
FICO scores measure borrower credit risk and are commonly used by mortgage underwriters when originating loans on owner-occupied homes. The score is based on the applicant’s credit history and credit usage patterns, expressed as a number between 300 and 850. This score determines loan approval and terms offered.
A Letter of Commitment serves as official notification to a borrower from a lender, indicating the latter's intent to grant a loan. This letter typically specifies the terms of the loan, including interest rate, loan term, and sets a date for closing.
A decision by a lender to extend credit in a specified amount, often accompanied by a loan commitment outlining the terms and conditions. Also referred to as Loan Preapproval when provided before formal loan application.
Loan Origination is the comprehensive process of creating a new loan, which spans from the initial marketing efforts to the actual closing of the loan agreement. This critical phase in lending encompasses several steps to ensure that both the borrower and lender align with the terms.
The loan-to-value (LTV) ratio is a financial term used by lenders to express the ratio of a loan to the value of an asset purchased. Typically expressed as a percentage, LTV ratios are used to assess the risk involved in a mortgage or loan agreement.
A No-Documentation (No-Doc) loan is a mortgage loan wherein the borrower is not required to provide standard forms of documentation, such as proof of income, employment, or assets to secure approval.
Prequalifying is an essential step in the home-buying process. It helps buyers estimate the maximum home price they can afford based on their income and liquid assets. While prequalifying does not promise or commit specific financing, it provides an outline of potential affordability.
A measure used by lenders to determine the maximum percentage of a borrower's income that can be allocated to debt payments and still qualify for a loan. This ratio helps assess the lender's risk exposure.
An underwriter inspects and evaluates the level of risk associated with insuring loans, securities, and other types of investments, making decisions that can significantly influence lending practices, policy formulation, investment strategies, and risk management.
