What Lenders Look for in Credit Scores

As mortgage lenders assess each applicant’s risk of default, they look at the credit score and all its most influential factorsWith a glance at the credit score, lenders can tell if the applicant might qualify for a Beacon Hill condo loan. In general, most lenders cannot authorize mortgage loans for anyone with a credit score less than 640. A credit score of around 700, however, not only improves eligibility but also helps Boston condo buyers attain favorable loan terms.

Factors That Influence Credit Worthiness

Weighing credit worthiness goes far beyond simply looking at the credit scores. Lenders also look at the factors that shape these scores to see who the applicants manage their finances. They look at the payment history first as this factor can reveal if the Back Bay condo buyers will make their mortgage payments on time. Lenders can see all the most recent 30, 60 and 90 day late notices attached to open and closed accounts. The late payment history decreases the chance of qualifying for the mortgage and drops credit scores quite a bit.

Credit utilization and age of accounts are also both important factors for lenders to consider. By looking at credit utilization, lenders can assess the level of debt held by the applicants along with their ability to cover all their financial obligations. The age of the accounts give lenders a glimpse at the financial responsibility and standing of the applicants over a specific length of time. Older accounts that remain in good standing have a positive impact on credit scores and the perceived creditworthiness of Back Bay loan applicants.

Although this factor has a minor pull on credit scores, lenders check for a high number of credit inquiries while processing the mortgage loan for a Midtown condo loan applicationThese inquiries stay on the credit report for two years before dropping off. When applicants have a high number of inquiries, lenders tend to see it as a red flag – and credit scores start to drop from the excessive inquiries.

Ways Credit Can Impact Home Loan Terms

Beyond their use as a tool for determining eligibility, credit scores have a big impact on the final loan terms offered to the homebuyersHere are just some of the ways these the scores influence mortgage terms.

Mortgage Interest Rates

As a part of their risk-based pricing model, mortgage lenders use the applicant’s credit score to determine the mortgage interest rate for their Seaport condo loan. A low credit score often causes the interest rate to skyrocket, resulting in higher monthly payments and loan payoff costs. People with a high credit score of at least 700 might quality for a home loan with a 3.6% interest rate, for example, while those with a 625 score might get assigned a higher rate of 4.1%. Therefore, it is possible for Seaport District condo buyers to save their households a lot of money by increasing their credit score before seeking a home loan.

Loan-to-Value Ratio Allowances

Lenders use different loan-to-value (LTV) ratios for people with high and low credit scores. This ratio reflects the overall value of the home compared to the total amount of the loan. The loan programs offered by the lender may use the credit score of the applicant to determine their ideal LTV ratio. For conventional mortgages, the LTV usually cannot fall below 80%, but for some programs, a high credit score may make up for that discrepancy.

Yearly Private Mortgage Insurance Costs

When North End condo buyers do not have a 20% down payment, they may have to take out private mortgage insurance (PMI) to qualify for the mortgage loan. Their credit scores also have an impact on the cost of this type of insurance. The private mortgage insurance companies take a look at the applicant’s credit score to determine their personalized rate. Those with a credit score of more than 750 will only pay a half percent of the home’s purchase price in PMI costs each year. For applicants with a 680 and below credit score, they can expect to pay twice that rate.

Bottom Line

As lenders weigh all the different creditworthiness factors for their Boston North End loan applicants, they are able to determine eligibility and set the right terms. This allows the lender and North End condo buyer to work together to find a mutually-acceptable financial agreement. Through this arrangement, the lender can assume a comfortable level of risk while allowing homebuyers to pursue their dreams of homeownership. 

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Author Profile

John Ford
John Ford
EXPERIENCE

Over the course of 20 years in the Boston downtown real estate market, John represented and sold numerous, condominiums, investment and development properties in Greater Boston and in the surrounding suburbs



In addition to representing Boston condo buyers and sellers, John is currently one of the most recognized Boston condo blog writers regarding Boston condominiums and residential real estate markets. John's insights and observations about the Boston condo market have been seen in a wide variety of the most established local & national media outlets including; Banker and Tradesman, Boston Magazine The Boston Globe, The Boston Herald and NewsWeek and Fortune magazine, among others.



HISTORY

For over 24 years, John Ford, of Ford Realty Inc., has been actively involved in the real estate industry. He started his career in commercial real estate with a national firm Spaulding & Slye and quickly realized that he had a passion for residential properties. In 1999, John entered the residential real estate market, and in 2000 John Started his own firm Ford Realty Inc. As a broker, his clients have come to love his fun, vivacious, and friendly attitude. He prides himself on bringing honesty and integrity to the entire home buying and selling process. In addition to helping buyers and sellers, he also works with rental clients. Whether you’re looking to purchase a new Boston condo or rent an apartment, you’ll quickly learn why John has a 97% closing rate.

AREAS COVERED

Back Bay

Beacon Hill

Charles River Park

Downtown/Midtown

North End

South End

Seaport District

South Boston

Waterfront

Brookline

Surrounding Communities of Boston
Contact
John Ford and his staff can be reached at 617-595-3712 or 617-720-5454. Please feel free to stop by John's Boston Beacon Hill office located at 137 Charles Street.




John Ford
Ford Realty Inc
137 Charles Street
Boston, Ma 02114

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