Seder & Chandler, LLP
Worcester 508-471-3018
Westborough 508-709-0024

How does a credit score impact mortgage financing?

Credit ratings can work both ways. Lenders may rely on them to assess the risk of a prospective client. Homebuyers with a good credit rating may be able to obtain more favorable mortgage financing.

But how much does a credit score really tell? Can a lender rely on credit rating agencies to measure the risk of a particular lending transaction? Does a low score accurately predict whether a borrower will default on his or her mortgage obligations?

Such skepticism is a valid concern, considering the antics of Standard & Poor's. The company received a $1.5 billion government fine for issues over its ratings of certain mortgage-backed securities.

Fortunately, a real estate attorney can help answer questions posed by lenders and buyers alike. Although a good credit score is not the only factor involved in a lender's due diligence, it might impact a borrower's rate of interest.

An attorney that focuses on real estate can help potential buyers gather their financial information to gauge whether a new mortgage is even affordable. In addition, having an accurate listing of monthly expenses and financial documents in one place, like Form W-2s, tax returns, pay stubs, bank statements and a recent credit report, may provide more leverage in negotiations with lenders. 

An attorney can also provide more context about how credit scores are calculated and can impact real estate purchasing decisions. For example, an individual's payment history and outstanding debts, or balance-to-credit-limit ratio, play a large role in a credit score. An attorney can also explore the various mortgage financing options. An attorney might even suggest a Federal Housing Administration mortgage loan that is federally insured, if it offers better terms.

Source:  LifeHealthPro, "LTCI Watch: Ratings," Allison Bell, Feb. 4, 2015

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