Another item to look for is the ratio between the mortgage loan and the value of the real estate, pledged as security, which is expressed as a percentage. This is referred to as the Loan-to-Value Ratio:
This means that the loan, expressed as a percentage of the property is 62.5%. The higher the loan-to-value ratio, the greater the lending risk because the protective equity declines as the LTV increases.
Example: A single family home with 4 bedrooms and 2 ½ baths is valued at $425,000. If we are making a 70% of value loan, the loan is $297,500. ($425,000 X .70 = $297,500) The difference between the value of the property and the loan is $127,500. This is referred to as “protective equity” or “equity cushion.”
Never accept a “Broker’s opinion of the value” or a so-called “in-house appraisal” directly employed by the Broker. This creates an obvious conflict of interest.
You should also require the company to obtain title insurance, insuring your lien position (First or Second) and insuring the property is free of unexpected liens & encumbrances.