Posted on: 15th Oct, 2005 05:19 pm
Why income is considered more important than a large down payment?
Hi Ray,
Lenders usually dislike in foreclosing a house as it is very much time consuming. This is the chief factor why they consider a stable income of a borrower more important than a single time large down payment. A steady income ensures that the borrower will be able to repay the full amount of the loan and no foreclosure will be required.
Usually a foreclosed home requires repair work as otherwise it would be difficult to sell it at the desired price. Since the lenders are not generally associated with the repair business, so they have to depend on a third party for the repair work and then fix it up for sale which involves a huge time.
If it takes 6 months to foreclose and another six months to sell the lender loses a considerable amount of interest. So there is a loss both in terms of time and money for the lender.
For banks, again it is a problem to simply throw people out of their house, since they failed to repay, as banks generally try to avoid bad publicity.
Moreover the law requires that banks should lend to those people who can afford the repayments of their loan. So, the banks strictly allow borrowers who have the ability to pay back.
The best way to judge a person's capability in repaying his loan is the stability of his income which ensures that the monthly payments will be made in time. But a large down payment without a back up of a stable income does not give this assurance that the borrower will not fail in future for the balance payments.
So, a stable income is given preference over a large down payment.
Thanks,
Caron
Lenders usually dislike in foreclosing a house as it is very much time consuming. This is the chief factor why they consider a stable income of a borrower more important than a single time large down payment. A steady income ensures that the borrower will be able to repay the full amount of the loan and no foreclosure will be required.
Usually a foreclosed home requires repair work as otherwise it would be difficult to sell it at the desired price. Since the lenders are not generally associated with the repair business, so they have to depend on a third party for the repair work and then fix it up for sale which involves a huge time.
If it takes 6 months to foreclose and another six months to sell the lender loses a considerable amount of interest. So there is a loss both in terms of time and money for the lender.
For banks, again it is a problem to simply throw people out of their house, since they failed to repay, as banks generally try to avoid bad publicity.
Moreover the law requires that banks should lend to those people who can afford the repayments of their loan. So, the banks strictly allow borrowers who have the ability to pay back.
The best way to judge a person's capability in repaying his loan is the stability of his income which ensures that the monthly payments will be made in time. But a large down payment without a back up of a stable income does not give this assurance that the borrower will not fail in future for the balance payments.
So, a stable income is given preference over a large down payment.
Thanks,
Caron
Cox,
In this industry for a loan so many things are important.
If you ask me, credit score is the most important thing but one thing that drives everything is the amount which you earn i.e. your income.
Even there are some strong points to support this in mortgage industry. Income gives idea about the financial strength and ability to pay off all the dues.
I have seen on many times, people with poor credit sometimes get good rates against their high incomes.
For generating business sometimes lenders tends to go for such borrowers.
Niicss
In this industry for a loan so many things are important.
If you ask me, credit score is the most important thing but one thing that drives everything is the amount which you earn i.e. your income.
Even there are some strong points to support this in mortgage industry. Income gives idea about the financial strength and ability to pay off all the dues.
I have seen on many times, people with poor credit sometimes get good rates against their high incomes.
For generating business sometimes lenders tends to go for such borrowers.
Niicss