Is your Borrower an A+ or an F?
But before reviewing them, please understand that you make the rules about how you invest your money. Some private mortgage investors just say they want 15% p.a. interest and won’t go above a 65% Loan to Value ratio no matter how good the credit of the borrower. And that’s an OK rule too. Our purpose here is explain the relationship between risk and reward so you won’t get talked into a bad deal.
First determine the credit class of the borrower. You can do this on the table below.
FICO is the credit score you will find for the borrower when you review their credit report. Get a Credit Report on your borrower.
Cash down is the actual cash money that the borrower will be paying at closing as a percentage of the sales price. For these purposes a reasonable guess is OK.
Try out our FREE loan evaluation Microsoft ®Excel spreadsheet.
| FICO/CASH | 25%+ | 20-25% | 15-20% | 10-12% | 5-10% | 0-5% |
|---|---|---|---|---|---|---|
| 650+ | A+ | A+ | A+ | A | A- | C |
| 625-649 | A+ | A | A | A- | B | C |
| 600-624 | A | A- | B+ | B | B- | C- |
| 575-599 | B+ | B | B | B- | C | C- |
| 550-574 | B | C | C | C | C- | D |
| 525-549 | C+ | C | C | C- | D | D- |
| 475-524 | C | C | C- | D | E | E |
| <474 | C | C | C- | D | F | F |
As you can see, the lower the cash investment and the lower the credit score, the worse the credit class of the borrower.
