This applicant is looking for a $150,000 loan to buy a home for him and his wife. He lives in Cleveland Ohio and currently rents an apartment. He wants to change all of that and move into a single family home for the first time were he and his wifecan have a family.

He has a problem in that his FICO score is only around 500 and unfortunately, lenders are not offering him very competitive interest rates. This is pretty typical and many people get this big surprise when they apply for loans only to find that they have to pay a great deal of interest.

Based on what this client has told us, he can qualify for a loan, however he wants a better interest rate than what is being offered to him. In the table at the end of this post we have illustrated the various interest rates for FICO scores of greater than 760, greater than 620 and also for a FICO score of 500 at the time of writing this post. As you can see there is a difference of $300 a month between the worst FICO score and the best. This $300 per month is a significant amount of money and he is being quoted numbers like these because he has a bad FICO rating.

(Continued)

Unfortunately the situation that this client is in, happens a lot more than it should. He has managed his finances well, paid all of his bills on time and then get’s into a dispute with a creditor, decides to not pay his bill and the creditor files a credit warning. His FICO score falls as a result making it difficult to get a loan and if he can get a loan, it is usually more expensive.

On top of that this client is a small business owner with a single employee (himself). Although he has been in business as a successful insurance broker for many years, he is considered a high risk from this perspective as well. Far too many small businesses have declared bankruptcy in the last few years and all small business owners get lumped in with the same crowd.

Small business owners must be squeaky clean when it comes to managing their finances. This is the only way the major banks will lend money to these small business owners.

In the mean time, we believe that this client can be approved for a loan, however his interest rates may be prohibitive due to his low FICO score.  Until he resolves the issue with the store and recovers his FICO score, he may want to consider completing his upgrades to his home over several years and self funding the refinishing work. This is probably something that he does not want to hear, however right now with the economy the way it is, credit is very tight, especially for small business owners.

Another suggestion is to consider a small revolving line of credit as a means of funding some of the work on a phased basis. As he is able to repay the loan, he can then borrow money once again to finance the next phase of the work that he would like to accomplish. Since he has a stable income, this should be no problem for him as long as he spreads it over several years.

Home/Mortgage Loan Amount :: $ 200,000

Home Loan Application and Processing Speed (when do you need the funds):: Within one months time

Do you currently have a mortgage? :: yes, a small mortgage

Bank Name and Branch :: Chase Bank, Broad Street

What City/Town, State and County do you live in? :: Columbus

Zip ::43215

What is your employment field? :: Insurance Sales and Broker

Employment Position :: Own my own insurance brokerage

When are you paid? (monthly/weekly /biweekly):: Monthly

Your credit rating to be – excellent, fair, or bad? :: Fair

How did you find us? :: searching for loans online

How are you paid? (direct deposit/paper check): Direct deposit:

Gross Amount Per Paycheck :: $ 8,333.00

Do you agree to have this information published online, without your PRIVATE information of course? :: sure as long as my company is not mentioned.

Extra information here please (some detail):: I run my own small insurance brokers company out of my home office. I have a very good set up in that most of my work is done over the phone and also online. I do have a separate office in my home and I can bring customers to my home as needed, however most of the time I meet them in their homes or at their offices during the day. Over the years I have sold a lot of insurance and now I pretty much rely on renewals and the odd additional customer for my income. Every month I pay myself a small salary and also the expenses that are part of running the business. This has worked well for us for the past ten years.

We have been in our home for over twenty years and only have a small mortgage left on the home. There is only another five years of payments left. We plan to complete some upgrades on the home, new flooring, new kitchen, new roof and windows. We also want to redo all of the landscaping as well. We plan to stay at this location for many more years and want to make it nice for us to enjoy for those years.

Note to Lender :: We have tried finding a loan from several of the major banks, however because my FICO score is below 600 and I am self employed, they  have not been forthcoming with a loan. In fact one loan manager said he would be surprised if I could get anyone to lend me money. I really do not understand why someone who has a small business with solid income cannot get a loan these days. I know my FICO score is low, but that should not matter as far as I am concerned, it should really be the ability to repay the loan that should count.

My wife and I have a low FICO score because we borrowed money for a new car, we have several credit cards, we have a mortgage and we have an issue with credit with one store that we are still fighting. We returned something we purchased at this store and they would not give us credit for the return. We decided to fight it and of course not pay the bill while we were fighting this charge. They retaliated by filing a credit warning and this resulted in lowering our FICO score. We are really upset about this but there does not seem to be anything we can do at this stage. If you have any suggestions, please let us know. We are really frustrated at this point, but we also want to get on with updating our home.

This potential client is applying for a $100,000 Loan and currently has a  FICO score of 550. They live in Cincinnati Ohio. The client has a stable job along with his wife at one of the local universities as a heating technician. He has been with the university for many years and expects to continue with them.  He did mention that he has not received many raises, but then it is a stable job in today’s economy.

This client has several questions in addition to applying for a large loan which we have taken to be really a mortgage loan. He wants to consolidate his current small mortgage along with several small loans and complete several upgrades around his home with the remaining money.

His questions are:

• What is a FICO score and how does it impact him?
• Will his home need to be appraised?

The second question is easy to answer. The answer is yes he will need to have his home appraised. Since the real estate market has been so volatile, lenders will want to confirm the equity that is available in his home. They take the appraised price, deduct any current mortgage to obtain the remaining equity. They will loan a portion of this amount to him as a new mortgage in this case. The amount will depend on his credit rating and local rules they have about risk etc.

The first question relates to the clients credit rating.  A FICO score is a calculated score taking into account payment history, current debts, length of payment history, the new credit application and the types of credit in use. Customers with scores of 700 or higher are usually given the best competitive interest rates since the risk is perceived to be low on the part of the lender. Scores in the range of 500 to 700 are considered more risky by lenders and they tend to charge more for customers applying for loans and mortgages with credit ratings in this range.

In the example loans at the bottom of this post, we have assumed a $100,ooo loan, with a 15 year term and interest rates that correspond to someone who has a FICO score of 550,  500 and greater than 700 to show the difference a good credit rating can make. These rates are current at time of writing and will vary over time. With a credit rating FICO score above 700, you might be able to find a mortgage of 3%, while at 500, the rate is 10% or even higher reflecting the risk that the lenders perceive with your rating. These are substantial changes and represent hundreds of dollars difference when you compare monthly payments, and thousands of dollars difference in the total cost of borrowing.

Our client for this loan in Cincinnati Ohio, could obtain a much better interest rate if he had a better FICO score. He may want to look at why his particular score is were it is and then see what can be done to improve the rating. It could save him a lot of money over the life of the mortgage. Our client has some decisions to make regarding whether he wants to proceed now with the loan or work on his FICO score before proceeding.

Home/Mortgage Loan Amount :: $ 100,000

Home Loan Application and Processing Speed (when do you need the funds):: within the next 60 days

Do you currently have a mortgage? :: yes

Bank Name and Branch :: Guardian Savings Bank, Colerain Ave

What City/Town, State and County do you live in? :: Cincinnati, Ohio

Zip :: 45239

What is your employment field? ::Heating Technician for a local  University

Employment Position :: Heating Technician

When are you paid? (monthly/weekly/biweekly):: Biweekly

Your credit rating to be – excellent, fair, or bad? :: fair based on my FICO score

How did you find us? :: Searching for FICO loans on the net

How are you paid? (direct deposit/paper check):: direct deposit

Gross Amount Per Paycheck :: $ 2500

Do you agree to have this information published online, without your PRIVATE information of course? :: yes , no problem

Extra information here please (some detail):: I am applying for a loan of $100,000 and I have a FICO score of 550, however I really do not understand what a FICO score is and what it means in terms of obtaining a loan. If you could help me understand what this is and how it affects my loan application, it would be a big help.

I am applying for this loan to do a bunch of things. My wife and I would like to pay off several small loans, a small balance on our single credit card and spend a little money updating our home with some minor landscaping and painting indoors. We are also replacing the rugs in our house as well. They are pretty old and it is just time to replace them. We thought if we got this loan and do all of these things, we could actually reduce our monthly payments by not having to make the payments on these loans.

We have a small amount  remaining on the existing mortgage and we have lots of equity remaining in our home. Do you think we will need our home appraised since we are essentially putting a new mortgage loan on the house?  Our house has not been appraised for some time, and we are curious regarding the current value given all of the twists and turns in the real estate market. From what we read, we are one of the lucky ones, since we have a small mortgage and we have own our home for many years, well before the appreciation and then the depreciation of real estate began.

Note to Lender :: Regarding my job, I work for a local university as a heating technician. I am part of the maintenance staff responsible for keeping the heating systems running, doing repairs and upgrades as needed. My wife also works for the university and we both have been with them for more than ten years.  Our jobs have been and are still stable. although we have not received many raises in the past few years, and are not likely too, our income is stable. Please answer out questions and hopefully approve our loan as well.