The Real Role of Credit When Buying A Home

Do you think you need to have great credit and a high FICO Real roles score to get a home loan? When it comes to getting a home loan what is good credit anyway? Why is it that some one with a 580 score can get a home loan while some one else with a 720 score gets denied? What’s the real role of credit in getting a home loan?

Getting a loan to buy a home is the single largest debt The scepticisle most people will take on in their lifetime. When you apply for a home loan you are asking the lender to make a decision to extend credit to you. Regardless of what the Loan Officer or Mortgage Broker tells you; every lending decision is based on 5 things. How you score on each of these things determine whether you get your loan or not. Let’s take a look at these 5 things and find out exactly what role your credit report and FICO score plays in the decision process.

You may have heard the phrase “Money attracts money”. That’s true. One Inside the story of the things a lender looks at when deciding whether or not to loan you money is how much money you have. This is called CAPITAL. Capital is an important part of any lending decision; it tells the lender what you own or what your assets are. The more capital you have the more likely you are to get a loan. Consider this simple example; say you have $20,000.00 on a fixed deposit sitting in your bank. Something comes up and you need $2,500 in a hurry. You go to your bank, tell them you need to borrow $2,500 and remind them that you have $20,000 sitting there. Do you think they would have much of Mega News Web a problem loaning you the $2,500? Do you think they would be overly concerned about your FICO score? Capital is not the only consideration though, let’s look at another one.

The next thing a lender will look at when deciding whether to grant you a loan is the COLLATERAL you offer them. This is the asset the bank holds onto just in case you don’t repay the loan. For first time home buyers this will be the house itself. Let’s return to the example above for a minute, since you don’t want to cash-out your fixed deposit you decide to offer it to the bank to hold onto just in case you don’t pay back the $2,500 loan. Do you think the bank would be willing to hold onto $20,000 as collateral for a $2,500 loan? Would you personally make that loan, someone borrows $2,500 from you and gives you $20,000 to hold onto just in case they don’t pay you back? Would you care too much what their FICO score was? The average first time home buyer does not have sufficient assets to offer the bank an attractive collateral that’s why the bank holds onto the house being bought, Flex electricians and uses it as collateral for the loan.

Another thing that influences a lender’s decision to loan you money is called CONDITIONS. This has nothing to do with you but refers to the economic climate existing at the time you apply for the loan. Conditions can range from the internal balance sheet and underwriting requirements of the particular bank branch you went to, to the national and global economic climate. A good example of conditions is the general tightness of credit in the marketplace now. You have no control over that, your credit score may be 800 and you meet all the regular requirements for a loan but if no money is available you’re not going to get the loan. Simple as that. Also even if money is available, Lifes Vitals you have great credit and your loan request makes sense to you if you do not meet the bank’s underwriting requirements you won’t get the loan.

So far you have seen that a lending decision is based on: Optimum Traders

– Capital
– Collateral, and
– Conditions

Notice that none of these involve your personal credit history or FICO score. Notice also that if the conditions are right, the bank would be willing to make a loan if the borrower has enough capital and/or offers a big enough collateral. You yourself would make the same loan without much consideration to the borrower’s credit score. So what’s the real role of credit in getting a home loan? And why is so much emphasis placed on it?

In Part II you will discover the other 2 things every lender looks at when deciding whether or not to give you a loan. The actual role of credit may surprise you. For more info please these websites here:-


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