Question

For which buyer would a lender most likely approve a $200,000 mortgage?

Answer 1

Available options:

1. a person with a credit score of 800 with a large amount of debt who has recently switched to a lower-paying job
2. a person with a credit score of 760 with a small amount of debt who has had steady employment for many years
3. a person with a credit score of 650 with a large amount of available credit who has a low-paying, but steady job
4. a person with a credit score of 600 with a small amount of available credit who has recently switched to a high-paying job

Answer:

2) a person with a credit score of 760 with a small amount of debt who has had steady employment for many years

A credit score higher than 660 is considered good, above 720 is very good and above 800 is extremely good. Banks will usually lend money to individuals with a good credit score, but the interests and other specific terms might not be as good as for individuals with very good or excellent credit scores.

The problem with the individual in option 1 is that he/she already has a lot of debt and probably has been recently fired and is switching to a lower paying job. The combination of less income plus high monthly payments is never good. You must remember credit scores are based on historical data, and things can change very quickly.

While the individual in option 2 has a very good credit score, doesn't have a lot of debt and has been steadily employed for several years, this is a really combo for banks.

Answer 2

I think the answer is B: a person with a credit score of 760 with a small amount of debt who has had steady employment for many years.