As many of you know, I like to read and listen to podcasts about mortgage industry news and happenings. While I do learn more about the industry, I am often disappointed by what those in the industry are saying to their clients and the public in general.
While I am far from perfect, I feel that I am someone my Indiana clients and referral partners can go to when they need good information to make a quality decision. Read the following article and my comments and let me know what you think.
The article can be viewed in it’s entirety at “Secrets To Getting A Mortgage With So-So Credit“.
The article starts out with the following “Federal Reserve Chairman Ben Bernanke said lending standards for mortgages have tightened so considerably that “”the bottom third of people who might have qualified for a prime mortgage in terms of, say, FICO scores a few years ago — cannot qualify today.”" Indeed, roughly one-in-four mortgage applicants was denied in 2010, up from about 18% in 2003, according to data from the Federal Financial Institutions Examination Council. And those are just the ones that apply — many discouraged potential borrowers don’t even bother to apply anymore.”
I would tend to agree with these statements. The tightening of the lending standards has raised the minimum credit score required and many potential buyers are not even attempting to get a mortgage. Unfortunately, many could qualify now or in the near future if they knew the truth about what score they actually need, their minimum down payment, and other qualifying standards.
While the story touts minimum of 620 credit scores, they also state that Fannie Mae and Freddie Mac require 20% down (or an 80% equity position).
What they don’t say is that USDA and VA still offer 100% (Yes, you read that right) financing. And, FHA has a program called the 203(k) loan where you can borrow the cost to purchase PLUS the cost of improvements with just 3.5% down. Feel the need to have a lot of “skin in the game”? The VA loans with 100% financing are the best performing loan program currently.
In the story, a loan officer states he has a borrower that was seeking a refinance “but he had a single blemish scarring an otherwise spotless credit report. The client had a couple million dollars in assets, high income, ample home equity — and a strong credit score of 700.”
Turns out that this “blemish” is a short sale on an investment property. Without knowing all the details, it sounds like the borrower entered into a contractual obligation with a lender (via a mortgage) on an investment property (maybe a speculative move) and when it didn’t sell because of the economy, he forced the lender to take a loss when he sold it for less than was owed. More than likely he would not have shared a profit with the lender, so why would he think that forcing the lender to take a loss would not inhibit his ability to borrow money in the future? Sounds like he may have had the funds to cover the loss…
With a couple exceptions, the article was about lenders who are able to make common sense loans for clients who may not fit the rigid structures of the lending guidelines, but who are a good risk to handle a mortgage payment. It’s all about looking at the whole picture, not just score or debt-to-income ratios, and especially at what the borrowers future holds instead of past issues that are holding them back that have been corrected, or in some cases, not the borrower’s fault whatsoever. You need look no further than an innocent spouse whose credit has been ruined by an ex who doesn’t pay the bills on a home or auto they were awarded in a divorce.
Less than perfect credit holding you back? Lets take a look and see what can be done. You may be happily surprised!
Scott
Your Indiana mortgage expert specializing in FHA, VA, and USDA Rural Development loans.
