How credit report help subprime lenders to make bad credit home loans in Ohio - OH?
When people in Ohio apply for bad credit home loans, subprime mortgage lenders invariably check their credit report and credit score. Mortgage lenders check bad credit applicant's credit reports to gauge how likely they are to repay their home mortgage loan. Studies have shown that people who have paid their bills in the past are likely to continue to pay their bills in the future. Conversely, people who have not paid their bills in the past will likely continue to not pay their bills in the future. The idea: past behavior is indicative of future performance.
So what would life be like for the subprime lenders and bad credit home loan borrowers in Ohio without the advent of credit reports? Let's follow the lives of two men: Barney Borrower and Larry Lender.
Barney Borrower and his wife, Betty, are new to Ohio. Barney's employer transferred him to Columbus, Ohio and now they are looking to buy a home in which they can raise their two kids. Ever since they got married, poor money management led to bad credit scores for both of them. They have their eye on a nice two-story home complete with a walk-in closet and a white picket fence. The asking price is $200,000 which they want to finance by getting a poor credit home loan mortgage. They have about $10,000 in savings which would be enough to cover the closing cost of the mortgage loan. That means they will have to get a bad credit home loan for almost $200,000 which is 100% financing. So Barney and Betty visit multiple subprime lenders to inquire about getting a bad credit home mortgage loan but since they are new to town, all the poor credit lenders say the same thing: Unless you can put down a 15%-20% as down payment, we can't help you.
Larry Lender works for a local bank in Columbus, Ohio. He's been under pressure from his superiors. Some of the bad credit mortgage loans they have been making are going into default. Larry's bank is a big bank, but it's small enough to feel the pressure of a bad home loan. This is other people's money that they are lending out, so there is not much room for errors.
Larry looks at the home loan application for a poor credit mortgage from Barney and Betty Borrower. Barney has a good, stable job but he's new in town. For all Larry knows, the reason why Barney is new to Columbus, Ohio is because he's skipping out on a home loan in another state. Larry would like to loan the Borrowers the mortgage money they need but he just can't take the risk unless they put up 20% of the purchase price of the home. Unfortunately, Barney and Betty don't have $40,000. Larry tells Barney and Betty to rent a home for a little while. Borrow smaller sums of money from the bank and other local merchants. If they can build a good relationship with local businesses as well as with Larry's bank, then he will give him a bad credit home loan.
It was from situations like these that credit reports were created. The purpose of credit reports is to allow bad credit lenders to gauge your credit worthiness to loan you a bad credit mortgage without having to know you personally. This is mutually beneficial for the poor credit home loan borrower and the subprime lender. It allows lenders in Ohio to get new customers outside Columbus, and it allows borrowers to shop around for the best mortgage loan terms.
There are some things that the credit report does not tell. It doesn't reveal that the exact reason for your bad credit. Therefore, a bad credit lender looking at your credit report does not know if the reason for your bad credit is because of a medical crisis or because you just decided not to pay your bills. So in order to increase your chances of getting a poor credit mortgage loan, you ha