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Owning a Home with a Below-600 Score

By Sally Maison
Published: Saturday, September 26th, 2009

Owning a Home with a Below-600 ScoreBanks choose prime customers when granting mortgage loans. These are the people whose credit scores are 700 and above. For Fair Isaac Company, Experian, and Equifax, the highest score is 850. TransUnion’s highest score is at 843. Unfortunately, nobody is perfect, not even in credit ratings. Moreover, average consumer rating is just 692, a few points short of the excellent rate. However, people who are within the 620 to 679 range are still considered lesser risks by creditors.

There are those consumers, however, who put sincere efforts, yet they still fall short of the “OK” credit score. Most of the time, they are denied loans especially mortgage loans. The good thing is that they can still avail home financing through 100% financing. This is a type of loan which is given to people who are considered high-risk borrowers. Normally, people like this would have a rating around the 540 range.

Companies which offer 100% financing provide loans to people without asking for down payment. Borrowers only need to present bonds and stocks to secure loans. This is where the disadvantage of a hundred percent financing comes. By securing bonds and stocks, borrowers place themselves at a risk of having his securities liquidated in case he is not able to pay his loans.

There is another type of mortgage loan which offers financing plus an extra 3% to help a borrower during closing. This is called 103% financing, which means that a borrower will be given total cost of his loan plus a little extra. This 3% will be used to cover expenses during the transfer of the title from seller to buyer. Again, this has the same procedure with the 100% loan.

The two loans mentioned above fall into subprime lending. This kind of lending is used to extend money to people who have scores below 620. It has higher interest rates to compensate for the high risk levels of its clients. However, subprime lending is gaining more popularity now since credit scores are continuing to drop.

Experts advise consumers to look at subprime lending positively when they cannot avoid it: they should consider it an opportunity to rebuild creditworthiness. Paying dues promptly under this type of loan will definitely boost their scores.

Even professionals who have recently graduated can take advantage of this. People who have little or no credit history are considered to be great risks so they are rated very low. By establishing themselves as good debtors at the lower level, they can easily move up to being prime consumers.

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