It is true that a consumer’s credit score greatly factors into the kind of deal that she or he may be able to get from a mortgage lender. Low interest rates are tied directly to a high credit score as it implies a heightened creditworthiness. Interestingly, the credit scores are only the beginning of the criteria and there are other factors lenders are considering before extending credit to hopeful homeowners.
Take for example the consumer’s ability to meet monthly loan obligations. Low credit scores may be a tip off at a bad credit risk, but in some cases banks are willing to take into account the trends in a consumer’s credit profile before denying a loan application. Even as missed payments are a serious black mark on any consumer’s credit profile, the consumer who had a stellar credit history, experienced adverse conditions of a temporary nature, and has since recovered and is once again following the already established pattern of making timely payments, may be rewarded with a loan at a decent rate. The lender may elect to accept the borrower’s explanation for the uncharacteristic blemishes on the credit file.
Yet in other cases even the presence of a great credit score and payment history is not sufficient to persuade a lender to take on a borrower. The problem may lie in the debt to income ratio the borrower’s finance evidence. Lenders get nervous when more than 40% of a borrower’s monthly income is allocated to consumer debt such as credit card payments and car loans.
This may be offset by the liquidity a borrower has. If there is 401(k) account that could be tapped into for ready cash, an IRA, a savings account with three to six months of living expenses, and any other amount of emergency cash, mortgage lenders find that the consumer will most likely have the liquidity and wherewithal to find the money needed to meet mortgage payments, even if there are some temporary financial setbacks.
In short, consumers shopping around for low interest mortgage rates should not be discouraged by the first lender that might choose to pass on their business. There are plenty of ways to still get that loan and different lenders have different ways of looking at qualifying data.
