Final answer:
The most important factor a lender would consider in making a home loan is the degree of risk involved. This includes the availability of mortgage funds, the economic outlook, changes in laws, and historical lending patterns. Lenders assess risk by examining factors such as interest rates, inflation, and the likelihood of borrowers defaulting on loans.
Step-by-step explanation:
In deciding whether or not to make a specific home loan, a lender would consider several factors, but the most important factor is typically the degree of risk associated with the loan. Factors that could influence this risk include:
- The availability of mortgage funds, which could be affected by the number of people at the most common ages for home-buying increasing.
- The general economic outlook, as positive sentiment about job security and economic growth can enhance borrowers' ability to repay loans.
- Federal and state laws that could make it cheaper and easier for banks to make home loans due to changes in regulations.
Historically, local banks made home loans with the risk of losing money if families could not repay. Over time, financial institutions diversified, but the risk remains a critical factor due to the potential of defaults, as seen when banks find that more people than expected are not repaying loans.
Economic uncertainties, such as a threat of war or a decrease in national savings, also affect risk assessments.
When evaluating a mortgage loan, lenders consider the mortgage interest rate and inflation rate to assess the desirability of the loan.