Posts Tagged ‘minimum qualifying credit score’

Mortgage life after a derogatory credit event

February 14, 2017

blog-author-clayjeffreys3

An unforeseen event takes place… a medical event, job loss, divorce, death of a spouse… before you know it, bills are piling up and they never seem to end. Eventually this buildup could result in a bankruptcy, foreclosure, short sale… a major derogatory credit event. Once it is over, will you ever be able to buy a home again?

The answer is yes. During the housing boom, someone could apply for a loan the day after completing a bankruptcy. Let’s just say guidelines are different now, but not insurmountable. Most people assume there is a 7-year wait after something as big as a bankruptcy or foreclosure. That is true if you are looking to qualify for a Jumbo loan (any loan amount over $424,100). On the other hand, if you are looking to buy a home for say $350,000 with the minimum down payment, is it still a 7-year wait?

No, definitely not.

This post will focus on conventional loans. Next time, we’ll discuss government loans.

What are the waiting periods? Using today’s guidelines*:

  • Chapter 7 bankruptcy: requires a 4-year wait
  • Chapter 13 bankruptcy: requires a 2-year wait from the discharge date, but 4 years from the dismissal date if the Chapter 13 bankruptcy application isn’t accepted by the courts
  • Multiple bankruptcy filings: 5-year wait
  • Foreclosure: 7 years unless the home was included in a bankruptcy filing. In that case, it drops from 7 to 4 years
  • Other: There is a 4-year wait for a deed-in-lieu of foreclosure, short sale, or the sale of a home during the foreclosure process

*Those are Fannie Mae guidelines. Technically, Freddie Mac does not have minimum waiting period. Underwriting goes by the Automated Underwriting Services findings from Freddie Mac. That said, the “findings” often mirror the guidelines of Fannie Mae. 

In only one of these instances is there a 7-year waiting period. That would be if there was a foreclosure on a home that was not included in a bankruptcy. In every other situation, one could be ready to purchase a home much sooner than 7 years. Government loans are much more forgiving, but conventional loans are to be used in situations where a borrower doesn’t qualify for a VA or FHA loan (more on that next week). Also, the maximum loan amounts on FHA loans are lower than conventional loans, so the purchase price could also play into determining which loan program to use.

Have you filed a bankruptcy, but want to own a home again? You don’t have to wait seven years. If you have re-established credit to a qualifying score, buying a home can come sooner than you think. Unsure of your situation? Purchasing a home in Georgia? If yes to both, contact me today. We can start the prequalification process and see how quickly we can get you into a new home.

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Home Buying Preparations – Credit

January 12, 2016

blog-author-clayjeffreys3

Last time we looked at income when qualifying to buy a home. This time, let’s talk about credit.

I know what most of us hear on the news… need “perfect” credit to buy a home. Well, that just isn’t true. Not only can a buyer qualify to purchase a home with an average credit score (around 660-680), what if I told you someone with a below average credit score could buy a home.

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Yes, it is true.

That brings us to a great question. What is the minimum credit score when buying a home? That depends on the loan program.

  • Conventional Loan – minimum credit score is 620
  • FHA Loan – minimum credit score is 640
  • VA Loan – minimum credit score is 620

Now the next question would shift to the interest rate. The common assumption is that a low credit score will really impact the interest rate. Well, again, that depends on the loan program. Would you believe it if I told you:

  • a buyer with a 640 credit score with only a 3.5% down payment could qualify for an FHA loan with a rate under 4%
  • a buyer with a 620 credit score with no down payment could qualify for a VA loan with a rate under 4%
  • a buyer with a 620 credit score with a 5% down payment could qualify for a conventional loan with a rate in the mid 3’s

Last year I qualified a buyer with a 624 credit score for a 15 year fixed conventional loan at a rate of 3.375%. Why? While a 30 year fixed rate loan has a dramatically higher interest rate with a low credit score, the same interest rate increase does not apply to FHA loans, VA loans or 15 and 10 year conventional loans.

Don’t let anyone make you think a bad credit score means a high interest rate. There are ways around a lower credit score so long as the middle credit score is over 620.

Looking to buy a home, but afraid you will get hosed on the interest rate due to a lower credit score? That may not be the case. Contact me today to get started on your new home loan for properties in the state of Georgia.

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Small down payment loan options

March 13, 2013

blog-author-clayjeffreys2
With yet another round of FHA mortgage insurance premium increases set to begin on April 1, 2013, many people think their only option of buying a home with a small down payment will just have to coincide with a ridiculously high monthly mortgage insurance payment.

What many people are not aware of is the fact that conventional loans have a program that requires only a 3% down payment. You will need a higher credit score than an FHA loan, but the down payment is actually smaller than an FHA loan. Also, you can get approved for conventional loans with as little as 5% down. Let’s talk these loan programs.

As we have recently discussed, FHA loans only require a 3.5% down payment. The drawback in the monthly mortgage insurance. Starting April 1st, all new FHA loans will have a 1.75% up front premium rolled into the loan amount. Also, the monthly mortgage insurance will increase to 1.35% of the loan amount. The mortgage insurance payments will be permanent unless you make a 10% down payment when you buy the home. The advantage of FHA loans is that your credit score can be as low as 640, but it comes at a cost of a REALLY high monthly mortgage insurance payment.

Conventional loans with 3% down do require higher credit score of 700, but you do get by with a smaller down payment. That isn’t the only thing that is smaller. The monthly mortgage insurance rate is only 1.15% of the loan amount. Also, there is NO upfront mortgage insurance premium rolled into the loan amount. If you have a qualifying credit score, this program comes with a smaller down payment, no upfront mortgage insurance premium, and a lower monthly mortgage insurance rate.

Conventional loans with 5% down only require a 660 credit score. The down payment is higher than an FHA loan, but again, there is no upfront mortgage insurance premium. Even with a 660 credit score, the monthly mortgage insurance will be less than an FHA loan. If you have a credit score in the 700s, the monthly mortgage insurance could be half as much as an FHA loan.

Whether you are a first time home buyer OR just someone looking to buy a home and need a small down payment, you have options other than an FHA loan. You can qualify for a conventional loan with as little as 3% or 5% down. In both cases, the monthly mortgage insurance will be less than an FHA loan. There is also no upfront mortgage insurance premium being rolled into the loan amount.

With all of the changes taking place to FHA loan, conventional loans are becoming more and more attractive. If you haven’t discussed a conventional loan with your mortgage broker, you should. If you are buying a home in the state of Georgia, contact me* and we can discuss it today!

* scroll down to the bottom of the page for my contact information

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Re-pull of Credit Report – Why it’s Required

September 4, 2012

There are no ifs, ands, or buts about it… if you are applying for a mortgage, your credit report will be re-pulled prior to closing. If you are not careful, this could cause your loan terms to be  reviewed, revised, and in some rare cases, denied.

This will be the first of a three part series reviewing this change. For this post, let’s talk about why a borrower’s credit report is re-pulled. The next post will cover what the loan approval process looks like now along with how a loan could be impacted by the re-pull. We’ll conclude the series by reviewing what an underwriter is looking for when your credit is re-pulled.

The re-pulling of one’s credit report is part of Fannie Mae’s Loan Quality Initiative. This loan quality initiative started as a way to ensure borrowers who were qualified for a loan at the start of the mortgage process STILL qualify for that loan at closing. The initiative looks to ensure that borrowers haven’t applied for new credit that may hinder them from making the new mortgage payment.

This has been in place for quite some time now, so loan officers and underwriters are well aware of the process, what to expect, and how to advise their clients. The easiest thing to do is NOT change your credit once a loan officer pulls your credit and determines you are prequalified for a loan. Problems can be avoided by taking the following steps through the loan closing:

  • do not apply for new credit. This includes major credit cards and store credit cards.
  • do not finance new furniture on a furniture store’s credit
  • do not make or finance a major purchase such as a car, boat or home appliances. Even if paying in cash, you might accidentally use up too much cash and not have enough left over for the down payment on the new loan.
  • do not drastically charge up your existing credit cards
  • do not close existing credit accounts

I advise my clients to continue to operate as they normally do on a month-to-month basis, but do NOT change their credit report. This includes getting new credit AND closing existing credit. Once we’ve closed on the loan, then finance that new furniture… get that new credit card… payoff a current credit account, etc. By taking these steps, you can help to ensure that your loan process will run smoothly from start to finish.

Looking to work with a professional who can help guide you around these potential pitfalls (and more)? If the property is in the state of Georgia, reach out to me to get started on your new loan today!

Next time, we’ll look at the loan approval process along with how a loan could be impacted by the credit re-pull.