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Can I get a 200k mortgage loan with a 605 credit score, zero debt, 55k a year, and 7.5k down?

Question:

Can I get a 200k mortgage loan with a 605 credit score, zero debt, 55k a year, and 7.5k down?

Mortgage Loan:

A mortgage loan would offer an option for home purchase, which allows the home buyer to pay off debt during a specific time frame with several payments.

Answer and Explanation:

Current financial situation:

  • Credit Score: 605 - Fair
  • Debt balance = 0
  • Income: $55,000
  • Available Downpayment = $7,500

Firstly, the credit score is 605, which is a burden for a mortgage loan of $200,000. The suggestion, in this case, is to increase the down payment, which should be 30% of the purchase price or more. In fact, banks will require a higher down payment if the credit score is too low as well.

Secondly, the estimation of available money for monthly mortgage payments would be necessary. Assume that the rule 28/36 is applied in this case.

  • Gross monthly income = Approx. $4,600
  • Maximum debt payments = $4,600 x 36% = $1,656

In this case, there is no debt. The amount of $1,656 will be for mortgage payment only. If the estimated monthly payment from the bank is less than $1,656, there will be a chance that the mortgage loan will be approved.

However, there are two concerns in this situation:

  • The low credit score will increase the interest rate.
  • In fact, the leftover after all housing expenses deducted from the net monthly earnings might not be not sufficient to cover the mortgage payment.

Learn more about this topic:

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Buying a House: Mortgage Types & Loan Length

from Finance 102: Personal Finance

Chapter 7 / Lesson 4
9.2K

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