Borrowers Profiles
Lets first talk about what makes a borrower an "a", "b", "c" or in some worse cases, a "d" loan.
As lenders in the past few years have determined that a person with a 720 credit score, and can fully document their income would most likely constitute an "A" borrower. Some lenders call these "Vanilla Loans" but I personally am not apt to that comment. But be prepared you will hear it.
A "B" grade borrower might have the same credit score but cannot fully document their income so may have to go stated income, or we can fully document their income but they have a credit score around a 680 or so.
A "C" grade borrower will have some credit issues, they still might have a decent score but there are some "Scuffs" on the credit that need to be cleaned up, and need to be addressed prior to purchasing a house.
A "D" borrower which is a term not people use anymore are borrowers that cant get conventional based financing, they do not meet the FICO (Credit) score requirement, and there for they are subject to hard money loans.
When you see an advertisement on TV and they say "come in and get a low 6.125% on a 30 year fixed" they are quoting rates for borrowers that fall into the "A" grade category. Does this make false hope......yes! But this type of advertisement is much more effective to get borrowers into the door and get them moved around in the system until they have signed on a house. The truth of the matter is as your borrowers profile goes down in grade your interest rates rise, as these become "Higher-Risk" loans to the lenders. These sell in the same matter on Wall Street but they are all packaged together as "B" grade loans, or "C" grade loans.
For Example. Mike has a mid FICO score of 720, he works for Boeing and makes great money. He has no credit problems, and has all of the minimum requirements to get him as an "A" grade loan. He would most likely get the low rates of 6.125%.
His Brother who works for Boeing at the same job, making the same money, and has the same money in his accounts, has a couple of problems on his credit report. These have brought his score down to a 660 FICO, he would now have to look at rates around 7%. If there other brother who went to the same bank, and had a really low credit score he would be faced with "C" grading and would be looking at rates in the 8's or 9's depending on the exact loan dynamics. So although they work the same jobs have the same income and good assets they are looking at rates completely different and therefore different payments on the same loan amount.
So how do we get these loans done?
Every lender has specific guidelines for each loan program. If you exceed the minimum requirements you can sometimes get price breaks. For example, if the lender required that you have at least 2 months reserves in your account, and you have 6, you may get a price break.
Every file is different and it is up to you the borrower, and you the Realtor to make sure that your lender will get the deal closed. Ask your lender questions, no question is stupid, and quite frankly we as lenders don't know how to do your job, so we would ask questions!!
This is a basic education for Credit Grading and every lender may use a different scale to determine risk factor, but this is the basic idea so you can be prepared to answer this question when your borrower asks you.
Thank you to
For asking a question. I love to help in any way I can. Together we can all share our information and better prepare ourselves to provide quality service to all of our clients.
-Ryan Sharratt
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