The term ‘underwriting’ was adopted when lenders began signing their name under the amount of money they were risking. A lender is essentially signing an agreement to take on the risk of losing an investment. Bankrate says, “During this stage of the loan process, the underwriter checks the borrower’s ability to repay the loan based on an analysis of their credit history, collateral, and capacity.” * Each lender takes the responsibility and risk of selling the agreed upon loan investment.
In traditional lending, underwriters research and appraise the risk a borrower presents. Underwriting helps form the market for lenders and borrowers by setting reasonable premium rates in order to cover the risk and cost of an investment. With Taylor Made, our loans are based on the after-repair- value of an investment, and less on the credit history of an applicant. In this sense, we underwrite loans based on the potential of the investment.
Before underwriting occurs, the lender will do research and appraisal on the person seeking to borrow. Hard-money lenders look at the appraisal value of the interested property which will be held as collateral for the loan. This process takes time with traditional lenders. Borrowers undergo an extensive credit history check, financial status check, debt-to- income ratio, and background research. Lenders will discovery if a borrower has outstanding debt or poor payment histories. Credit reports will be checked for indications of financial instability. This can have an effect on the lending and underwriting process.
“The appraisal ensures the bank that it is not lending out more money than the property’s current market value, and the inspection ensures that the property is in good condition.” * The property appraisal is always required before closing on the loan. The goal of the appraisal is to make sure that the money loan is not worth more than the property, and that the property hold sufficient equity and sustainable collateral. Lenders use the appraisal to establish the loan-to- value ratio (LTV).
Feel free to call us anytime. We are happy to answer any questions on your private loans. Remember, when the bank says no, we say yes!