Why Mortgage Service Ratio Tends To Result in Lower Loan Amount
When a borrower has a higher loan-to-value ratio (LTV), it is riskier for the lender to lend money to them. Lower LTVs, on the other hand, are better for borrowers. LTV ratios are calculated by comparing a borrower’s financial assets to the amount of money the borrower can afford to repay the loan.
Liquid reserves are financial assets that are available to a borrower after a loan transaction closes
Liquid reserves are financial assets that a borrower can tap into if needed to meet monthly mortgage payments. They are the funds remaining in a borrower’s account after paying off a down payment, closing fees, and signing documents. While some lenders will allow borrowers to supplement their liquid reserves with cash from other sources, others will not.
A borrower may need liquid reserves if they have low credit scores or have a low down payment. In such cases, lenders will prefer …