Tuesday, October 15, 2013

Lenders using new criteria to determine credit risk in mortgage loans

A low credit score doesn't necessarily result in an automatic turn down for a mortgage loan.

Mortgage lenders are looking for borrowers who are good risks, even though they may have little or no credit history. Lenders are now looking at additional criteria, some that they may not have considered a few years ago, in order to find new home buyers who are good risks, even though their credit score may not show it.


Those most likely to gain from this new way of looking at financial history include young adults and new immigrants. They are more likely to be approved without being subjected to extremely high interest rates because their scores are not high.


This "non-traditional" data that lenders are now looking at when considering home loan applications includes:


Information in public records, including property records and professional licenses. A license indicates that a person is a better risk because they have a steady income and commitment in the community.


Rental payment is another category that reporting agencies have begun to consider. Late payments could be an indicator of future behavior.


Utility payments and cell phone bill payment history can also be an indicator of whether a person with little or no payment history takes paying their bills seriously.


The takeaway for many is that even though you may have little credit history, or may have a score that falls somewhere between bad and good, you may be able to secure a loan from a mortgage lender. The first thing you need to do is talk to a lender to see what you qualify for and what a loan will cost. A mortgage lender will also be able to tell you how to improve your scores so that you can get a better rate.