I use this chart in every seminar to explain why you just can’t expect to borrow 100% for an investment price for the same amount you can borrow 80% of the value of your own home. Funny thing is, some people still don’t get it!
It’s a simple illustration of Risk, Rate and LTV and how they are related. Mr. or Ms. Perfect Credit are there in the center. These are the people who *may* qualify for those seemingly ridiculously low interest rates you see advertised. Anything outside of that such as a greater LTV, a different type of property, less ability to document income, or other changes, will affect the interest rate.
When a loan moves outside of that circle in starts to denigrate. Meaning the rate is going to go up or the LTV is going to come down. Lending is all risk based: the higher the risk, the higher the rate. Recently some politicians have tried to regulate how the industry treats people with credit issues. In some areas, Georgia, North Carolina and New Jersey to name a few, extremely liberal politicians have been able to pass legislation which ultimately penalized the ver sector of the population they claimed to be intending to help.
What happened, at least in Georgia, is regulations were created to govern the amount of interest that could be charged to a borrower regardless of the risk the borrower presented to the lender. They called the “predatory lending”. In reality what happend was people who originally could have qualified for a loan, albeit at a higher interest rate because the risk the presented to the lender, now can no longer qualify at all because the risk they present is too high for the lender to accept.
But I digress.
If you have a 562 credit score, have been on your job for less than a year, moved often during the last two years, have charge offs and missed payments you haven’t yet lowered your risk to the lender. If you want the better interest rates here’s what you do for the next 2 years:
1. Keep your job, at least stay in the same line of work and if you change jobs get a better one with more pay
2. Meet all of your monthly obligations ON TIME (on time means before the due date … not after – you’d never believe how many seemingly professional people simply do not pay their bills AT ALL)
3. Manage your expenses so that you can save some money for a down payment … 20% will qualify you for a great rate.
4. Pay all of your credit cards down to less than 25% of the available cedit line – full credit cards eat you up.
5. Do NOT close your credit cards without speaking to a PROFESSIONAL (Clark Howard is NOT a mortgage professional so take his advice on the subject with a grain of salt. He’s an ENTERTAINER, an author, and a funny guy.
6. Do NOT join a credit repair or credit counseling company even if it is “attached” to or recommended by a mortgage or real estate company. These things can tie you up for YEARS!
7. Keep the same transportation you have if you at all can.
8. Start working NOW with a seasoned experienced mortgage consultant
9. Don’t get yourself confused by dealing with all different kinds of people and especially from people who have little or no experience in the industry … Including Uncle Robert or Aunt Fredia!
Ken Cook – Nationwide Specialist – Information/Marketing – FHA Home Loans
678-439-868
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