7 FACTORS OF A LOAN TRANSACTION
1. Debt to Income Ratios—these are used to determine the borrower’s capacity to repay the mortgage. Higher ratios represent increased risk and should be offset by compensating factors.
2. Loan to Value—This is the ratio of the amount borrowed to the appraised value or sales price of the real property expressed as a percentage. It describes how much of the property’s value is being borrowed.
3. Capacity—This is the ability of the customer to repay the mortgage based on the customer’s monthly income.
4. Credit—This answers the question: Is the borrower willing to repay the debt?
5. Capital (cash) – Does the borrower have enough cash to meet the transaction requirements?
6. Collateral—property pledged as security for a debt.
7. Compensating Factors—these are items that offset any high risk factors present on a loan.