Finance
When a borrower's credit score is between 580-619, they are likely to face:
ADenial of all mortgage loans
BHigher interest rates and fees compared to borrowers with higher scores✓ Correct
CThe same rates as borrowers with 760+ scores
DFHA loan ineligibility
Explanation
Lower credit scores result in higher mortgage interest rates and fees (risk-based pricing). Borrowers with lower scores can still obtain loans but pay more due to the perceived higher risk.
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Key Terms to Know
Amortization
The gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.
Adjustable-Rate Mortgage (ARM)A mortgage with an interest rate that changes periodically based on a financial index, usually after an initial fixed-rate period.
Loan-to-Value Ratio (LTV)The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.
Debt-to-Income Ratio (DTI)A lender's measure of a borrower's monthly debt obligations relative to their gross monthly income, used to evaluate loan eligibility.
Math Concepts
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