Jennifer and Chase Jennifer and Chase have house fever. After searching for four

Question

Jennifer and Chase Jennifer and Chase have house fever. After searching for four months, they believe they've found the right house. They're debt- free, have good jobs, and have a 20% down payment. However, when they applied for a 15-year fixed-rate mortgage, they were rejected by their bank because they have no credit history. 1 What options do they have? Be sure to explain. 2 If they were your friends, what advice would you give them? Justify your answer. Why are they a safer risk for the bank than someone who has a history of credit? 3

Explanation / Answer

Answer1: Generally a loan can be rejected on account of majorly two reasons. One is poor or no credit score and the other is poor repayment capacity. In the first case if the borrower has defaulted on past loans or has not borrowed much it becomes relatively difficult to borrow.The following are the options available before Jennifer and Chase:-

Answer 2) Had they been my friends ,The advice would be mor or less the same as given above in part (1) i.e. increasing the amount of down payment or applying with the other bank / adding a guarantor with strong credit worthiness.

Answer 3) They are safer risk for the bank than someone who has a history of credit because of clean track record and an indication of financial stability where by they didn' t need to borrow.

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