Safe Mortgage Lending – Credit Ratings

The following article looks complicated, but really isn’t. It is basically just common sense. If someone has bad credit, you will need a bigger down payment from them and will charge a higher interest rate than if they have great credit. If the original mortgage holder did not negotiate this then you should ask for a bigger discount on the mortgage to compensate for your risk, or only buy enough of the payments to make yourself comfortable with the risk involved.

Determine the credit class of the borrower. (Not the mortgage seller). FICO is the credit score you will find for the borrower when you review their credit report. Get a Credit Report on your borrower. View a full explanation of the FICO credit score system.

Investment to Value is the percentage of the money you are paying for the mortgage to the value of the home. Cash down is the actual cash money that the borrower paid closing. So if the house is worth for $100,000 and the buyer put down $10,000 he has a $90,000 loan. If you buy this loan for $80,000 then it is an 80% Investment to Value loan. (ITV). The more cash down from the buyer. The safer the loan for you.

You can also just buy part of the mortgage.

As you can see, the greater the cash down, the lower the ITV and the lower the interest rate you will probably be able to negotiate with the seller of the mortgage in each credit group.

Remember, if the mortgage seller is too eager to accept your offer, there may be something you don’t know about. Maybe the home buyer (the borrower) is the local chief of police. Would you really want to be foreclosing on him if he doesn’t pay? Or how about someone who is about to sue the home seller because some defects weren’t disclosed to him?

Before you proceed please go through our tutorial on how to use a financial calculator.

We also recommend you check out our selection of Online Calculators.

The yields below are a guide only

• View a table for Owner Occupied.
• View a table for Non Owner Occupied.
• View a table for Commercial/Multi-Family/Vacant Land.