Can I get a 200k mortgage loan with a 605 credit score, zero debt, 55k a year, and 7.5k down?
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.
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from Finance 102: Personal FinanceChapter 7 / Lesson 4