| Do you think you need to have great credit and a high | | | | the bank to hold onto just in case you don't pay back |
| FICO score to get a home loan? When it comes to | | | | the $2,500 loan. Do you think the bank would be willing |
| getting a home loan what is good credit anyway? | | | | to hold onto $20,000 as collateral for a $2,500 loan? |
| Why is it that some one with a 580 score can get a | | | | Would you personally make that loan, someone |
| home loan while some one else with a 720 score gets | | | | borrows $2,500 from you and gives you $20,000 to |
| denied? What's the real role of credit in getting a home | | | | hold onto just in case they don't pay you back? Would |
| loan? | | | | you care too much what their FICO score was? The |
| Getting a loan to buy a home is the single largest debt | | | | average first time home buyer does not have |
| most people will take on in their lifetime. When you | | | | sufficient assets to offer the bank an attractive |
| apply for a home loan you are asking the lender to | | | | collateral that's why the bank holds onto the house |
| make a decision to extend credit to you. Regardless | | | | being bought, and uses it as collateral for the loan. |
| of what the Loan Officer or Mortgage Broker tells you; | | | | Another thing that influences a lender's decision to loan |
| every lending decision is based on 5 things. How you | | | | you money is called CONDITIONS. This has nothing to |
| score on each of these things determine whether you | | | | do with you but refers to the economic climate existing |
| get your loan or not. Let's take a look at these 5 things | | | | at the time you apply for the loan. Conditions can |
| and find out exactly what role your credit report and | | | | range from the internal balance sheet and underwriting |
| FICO score plays in the decision process. | | | | requirements of the particular bank branch you went |
| You may have heard the phrase "Money attracts | | | | to, to the national and global economic climate. A good |
| money". That's true. One of the things a lender looks at | | | | example of conditions is the general tightness of credit |
| when deciding whether or not to loan you money is | | | | in the marketplace now. You have no control over |
| how much money you have. This is called CAPITAL. | | | | that, your credit score may be 800 and you meet all |
| Capital is an important part of any lending decision; it | | | | the regular requirements for a loan but if no money is |
| tells the lender what you own or what your assets | | | | available you're not going to get the loan. Simple as |
| are. The more capital you have the more likely you are | | | | that. Also even if money is available, you have great |
| to get a loan. Consider this simple example; say you | | | | credit and your loan request makes sense to you if |
| have $20,000.00 on a fixed deposit sitting in your bank. | | | | you do not meet the bank's underwriting requirements |
| Something comes up and you need $2,500 in a hurry. | | | | you won't get the loan. |
| You go to your bank, tell them you need to borrow | | | | So far you have seen that a lending decision is based |
| $2,500 and remind them that you have $20,000 sitting | | | | on: |
| there. Do you think they would have much of a | | | | - Capital |
| problem loaning you the $2,500? Do you think they | | | | - Collateral, and |
| would be overly concerned about your FICO score? | | | | - Conditions |
| Capital is not the only consideration though, let's look at | | | | Notice that none of these involve your personal credit |
| another one. | | | | history or FICO score. Notice also that if the conditions |
| The next thing a lender will look at when deciding | | | | are right, the bank would be willing to make a loan if |
| whether to grant you a loan is the COLLATERAL you | | | | the borrower has enough capital and/or offers a big |
| offer them. This is the asset the bank holds onto just in | | | | enough collateral. You yourself would make the same |
| case you don't repay the loan. For first time home | | | | loan without much consideration to the borrower's |
| buyers this will be the house itself. Let's return to the | | | | credit score. So what's the real role of credit in getting |
| example above for a minute, since you don't want to | | | | a home loan? And why is so much emphasis placed |
| cash-out your fixed deposit you decide to offer it to | | | | on it? |