Podcast
Questions and Answers
What factor does NOT contribute positively to a credit score?
What factor does NOT contribute positively to a credit score?
- A long credit history with positive accounts
- Having a mix of credit types
- Timely payment history
- Too many new accounts and credit inquiries (correct)
How does a higher credit score affect the borrower's probability of default?
How does a higher credit score affect the borrower's probability of default?
- It has no effect on the probability of default.
- It increases the probability of default.
- It decreases the probability of default. (correct)
- It makes the credit score irrelevant.
Which of the following is included in the credit report?
Which of the following is included in the credit report?
- Personal net worth
- Personal identification information (correct)
- Annual income levels
- Future employment history
Which one of these factors tends to lower a credit score?
Which one of these factors tends to lower a credit score?
What role does the Credit Score play in the qualification process for loans?
What role does the Credit Score play in the qualification process for loans?
Which factors should a borrower disclose during the qualification process?
Which factors should a borrower disclose during the qualification process?
What does the housing expense ratio include when calculating the borrower’s qualifications?
What does the housing expense ratio include when calculating the borrower’s qualifications?
Why might previous bankruptcies affect loan eligibility?
Why might previous bankruptcies affect loan eligibility?
What is the upper limit for the total debt ratio acceptable at consummation?
What is the upper limit for the total debt ratio acceptable at consummation?
Which of the following is NOT a regular obligation considered in the total debt ratio calculation?
Which of the following is NOT a regular obligation considered in the total debt ratio calculation?
What is the key reason for including judgments and pending lawsuits in the qualification assessment?
What is the key reason for including judgments and pending lawsuits in the qualification assessment?
What typically constitutes the total monthly debt in the total debt ratio calculation?
What typically constitutes the total monthly debt in the total debt ratio calculation?
Which ratio is considered more critical in the qualification process?
Which ratio is considered more critical in the qualification process?
Flashcards
Credit Score
Credit Score
A numeric representation of a borrower's creditworthiness, indicating their likelihood of repaying debt.
Credit Report
Credit Report
A record of a borrower's financial history, containing information on their debts, payment history, and inquiries.
Credit Utilization
Credit Utilization
The percentage of available credit that is currently being used. A low utilization is better for your score.
Credit History Length
Credit History Length
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Credit Mix
Credit Mix
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Co-signer or guarantor obligations
Co-signer or guarantor obligations
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Impact of Past Financial Issues
Impact of Past Financial Issues
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Federal Debt Delinquency
Federal Debt Delinquency
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Impact of Judgments and Lawsuits
Impact of Judgments and Lawsuits
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Housing Expense Ratio (HER)
Housing Expense Ratio (HER)
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Total Debt Ratio (TDR)
Total Debt Ratio (TDR)
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Importance of the Total Debt Ratio
Importance of the Total Debt Ratio
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Automated Underwriting Systems (AUS)
Automated Underwriting Systems (AUS)
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Study Notes
Credit Report and Qualification Analysis
- Liabilities on a borrower's credit report transfer to loan applications.
- Lenders analyze unpaid balances, repayment terms, and payment history for each liability.
- Credit reports include personal information, credit score, credit type, payment history (open and closed accounts, collections), inquiries, and public records (bankruptcies).
Credit Score
- Credit score is a predictive tool assessing default probability.
- Higher scores indicate lower default risk.
- Scores reflect future default potential, not past behavior.
- Key factors affecting credit score include payment history, amounts owed, credit history length, credit mix, new accounts, and credit inquiries. Poor payment history, high debt load, and recent new accounts negatively affect the score.
Additional Liability Considerations
- Information not on credit reports, such as past foreclosures, bankruptcies, judgments, delinquencies on federal debt, pending lawsuits, or undisclosed co-signer obligations, are crucial.
- Co-signer or guarantor obligations might need consideration, especially when recent payments or new obligations are involved.
- Federal debt delinquency renders some programs ineligible.
- Previous bankruptcies/foreclosures impact eligibility and underwriting.
- Judgments & pending lawsuits influence creditworthiness.
Qualifying Ratios
- Qualifying ratios (lending ratios/debt-to-income ratios) determine borrower qualifications.
- Housing expense ratio: Projected total monthly housing expense (PITI) divided by gross monthly income (expressed as a percentage).
- PITI use depends on loan type (primary residence, second home, investment).
- Includes property taxes and insurance, even if not automatically escrowed.
- Total debt ratio: Total monthly debt (housing expense + other debts) divided by gross monthly income (expressed as a percentage). Accounts include recurring debts:
- Revolving charges
- Installment loans (>10 payments remaining)
- Equipment, auto, or other lease payments
- Mortgages/credit lines on other real estate
- Alimony, child support, separate maintenance
- Other recurring debt
Ratio Guidelines and Considerations
- Total debt ratio is more crucial than the housing expense ratio.
- Ratio limits vary by program; AUS evaluates ratios as part of comprehensive analysis, not rigid rules.
- Total debt ratio generally shouldn't exceed 50% at loan approval.
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