Equity Compared How Lenders Decide Whether or Not to

Equity Compared How Lenders Decide Whether or Not to Accept Applications

When lenders consider loans, they compare the equity of the home versus the amount of the loan applied. If the equity on the home is below the loan amount, the lender may still offer the loan, but may apply higher interest rates and higher mortgage payments. Since risk plays a large part in equity loans, the lender will apply higher rates of interest and mortgage repayments as an extra security.

This often sounds redundant to the borrower, since one would think when lending money, the lender would want to present an affordable price to the borrower to make sure the loan is paid. However, the lenders adhere to the Fannie Mae and Freddie Mac rules on risk factors. Thus, these parties are involved in lending and are backed by Congress.

When comparing equity loans, you want to make sure you get the most out of the loan. Borrowers are wise to read and understand the rules, regulations, stipulations, clauses, restrictions, exclusions, rates, APR, equity, and the loan itself before accepting a loan. Each equation plays a large part in borrowing; thus it will also include credit ratings,...