This is the borrower’s (your) credit history . It’s mainly your reputation with the bank and other creditors, such as utilities, credit card, other loans or services in which you have established by your record of paying back your debts. Each borrower has credit reports maintained by the credit bureaus of a country. This report outlines all the information necessary to calculate a credit score. Think of it as a cover letter of sorts for your investment resume, after all, it is the very first thing a lender will look at in order to evaluate your investment loan request.
Capacity – Your capacity to repay the mortgage
The capacity is essentially the measure of a buyer’s ability to repay the loan they’re taking. It uses the client’s income, job, and job stability, comparing it against the total amount of debt to assess the borrower’s financial standing.
Most investors are under the impression that it’s the existing assets that bankers first take into account when assessing an investment loan, but it’s actually the net income that is evaluated first.
Capital – Your savings or equity
This refers to any monetary contribution the buyer has made towards their investment, for example, a possible deposit or your equity. While a deposit may be the down-payment you’ve made towards acquiring your new property, the equity refers to the existing value of any other property which you may own.
The capital can often shifts the decision of the lender against you – especially in case you don’t have enough. The capital indicates your loyalty towards returning the bank’s money. Continue reading “Other Factors Lenders Consider When Assessing Investment Loans”