The mortgage lender begins the loan analysis procedure by examining the property and the proposed financing. Using the property's address and legal description, an appraiser is assigned to prepare an appraisal of the property and a title search is ordered.

These steps are taken to determine the fair market value of the property and the condition of the title. In the event of default, this is the collateral the lender must call upon to recover the loan. For more information you can also search online for “home loans near me” and get the required results in no time.

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If the loan application is related to a purchase, rather than refinancing an existing property, the mortgage lender will know the purchase price. Typically, home loans are made on the basis of appraised value or purchase price, whichever is less. If the appraised value is less than the purchase price, the usual procedure is to require the buyer to make a larger initial cash payment. 

Loan-value ratios

Next, the mortgage lender looks at the amount of the down payment that the borrower proposes to make, the amount of the loan that is requested, and the amount of other financing the borrower plans to use.

This information is then converted to loan-to-value ratios. As a general rule of thumb, the more money the borrower puts into the deal, the more secure the loan will be for the mortgage lender.

In an unsecured home loan, the ideal loan-to-value ratio for a lender on owner-occupied residential property is 70% or less. This means that the value of the property would have to fall more than 30% before the debt exceeds the value of the property, thus encouraging the borrower to stop making the mortgage loan payments.