NJ First-Time Home Buyers

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Mortgage and Credit Score Hurdles - Yet Again

Home EquityIt seems that every time I turn around Fannie, Freddie, or even FHA are either raising credit score requirements, or tacking on higher fees - OR BOTH.  Several years ago, you could find 100% financing for people two years out of foreclosure. In a rapidly appreciating market a loan product like that still might be safe for the investor, because someone that is months behind in mortgage payments could list their home and sell it in 30-45 days, and net a profit even though they bought just 6 months prior.  Many people "won"!

However, it seems like we all are losing today.  If you hang around the office nowadays, you'll hear things like, "Sir, you need a 740 or better FICO score, and will have to put 30% down or more." Even FHA, the savior to us all in this market, is hitting back hard. Rumor has it that after this Friday, February 20th, lenders such as Wells, Chase, and Citi will no longer accept FHA loans with a FICO score less then 620. (You better lock them in now!) Even if other lenders are initially going to accept FHA loans below 620, there is a good chance that they will follow suit.

This will again cut a HUGE segment of today's buyer out of the picture.

Mr. President and staff, everyone is glad you are making efforts to beef things up and get first-time buyers out and buying, but don't forget, a very large percentage of these buyers have credit scores at or below 620. What can be done about that? Our first time buyers will never realize the $8,000 tax credit.

Fannie, Freddie, and many portfolio lenders would finance anyone with a pulse a few years ago. And now our nation is really hurting because of such lending practices.  And yet here again, another tidal wave is coming against the "average" buyer. Except this time, lenders are going overboard restricting good, solid buyers.

Great Depression ... ?

It is hard to stimulate a housing market when the lenders are increasingly working against it.

In case you do not know, it is not hard to have a 620 score. You can pay EVERY bill you ever had, on time, and have a 620 or lower score just by carrying high balances on you credit cards. The reality is lenders see scores in the 570's with NO late payments.

No one is suggesting that there is no additional risk with such a borrower that heavily utilizes credit cards. However if such a borrower can fully service this debt along with their new housing debt, and have a good debt ratio around 41%, then they should have a loan available to them. We used to love FHA for their "common-sense" underwriting. Now even FHA is getting credit score requirements tacked on. Even if FHA themselves aren't restricting, the end result is the same.

Isn't this the very reason FHA was initiated?

Who's to say the future doesn't hold even higher FICO requirements for the home buyer?  One would hope FHA will step in and try and regulate investors from getting out of hand. There is such a thing as good regulation, after all.


 

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Steve Kappre is a Certified Mortgage Planner with Treasury Mortgage, a subsidiary of Aurora Financial Group, serving all 50 states, focusing on Gloucester, Camden, and Salem County, NJ. Steve specializes in;

• All areas concerning First-Time buyers; First-Time Buyer mortgages, grants, down payment assistance, tax credits, police and fire loans, rehab loans for first time buyers, and more.

• Reverse Mortgages for seniors age 62 or older.

• Equity Management strategies for high-end homes and high net worth individuals.

Contact Steve Kappre directly at 856-419-3561 or at www.stevekappre.com

Comment balloon 12 commentsStephen Kappre • February 19 2009 05:40PM

Comments

Unbelievable timing!  I just heard about this earlier today when I was trying to get my client with just under a 600 credit score preapproved.

This client is the picture of today's first time homebuyer! 

In his case, I'm hopeful that she'll be able to clean up her score enough to be able to purchase by the end of the year and qualify for the $8,000 tax credit.

Posted by Gail Szeluga & JoAnna Siminerio, Fostering Community Spirit Through Real Estate (Weichert Realtors - Manalapan - Marlboro) over 10 years ago

Yeah we might be able to price right to Fannie after tomorrow and other investors, but it just makes me nervous and I may opt for a 60-day lock, so we don't get smashed into a corner and have to ask for more $$ to buy down the rate. Anyway ...

Posted by Stephen Kappre, Helping You Home (KW Hometown) over 10 years ago

Hey Steve ! - Another whack in the knees huh ! I heard about the 620 change yesterday and have two buyers who would be affected by this.

At some point the lending grip has to loosen up ...

 

Posted by Sheldon Neal, That British Agent Bergen County NJ (Bergen County, NJ - RE/MAX Real Estate Limited) over 10 years ago

Steve - I also have a client with a fico score in the 580's. Why?  Because he has a lot of school debt, thet he is paying on, every month on time.  Fortunately, I still have one lending source that will approve an FHA borrower down to 580.  How long they will continue to do this is a little scary.  I'm sure that at some point, they will follow the crowd.  However, I hope they stand their ground and stick with their guidelines because if they do, they will be the only source around here who can do that.

Posted by Donne Knudsen, CalState Realty Services (Los Angeles & Ventura Counties in CA) over 10 years ago

Donne - FHA is usually the only source right now. I've had to put 700+ FICO borrowers into FHA - because at this point it makes the most sense.

Posted by Stephen Kappre, Helping You Home (KW Hometown) over 10 years ago

Steve, it seems that every week or at least every month it becomes more restrictive. I too, have many clients with 700+ credit scores in FHA. People need higher LTV's. Mid to low 600 scores unless the LTV is less than 60% conventional get expensive.

Jay

Posted by Jay Williams, Mortgage Loan Officer - Getting You The Right Loan (Greenville, NC) over 10 years ago

Great post Steve.  The banks are getting money from the govt. and they are supposed to be easing up on the credit market, but that is just not happening.  Hopefully the new credit score requirement of 620 will only be a temporary one. 

Posted by Beverly Jeppesen (Beverly Jeppesen) over 10 years ago

Jay - Thanks for the message - always good to know other pros are seeing the same stuff.

Beverly - I agree. No one wants bad loans, but common sense ones yes. The 'ole manual underwrite should have a better place then it does now. That is why USDA loans can be great,. Sure they are 100% but the DTI's have to be in line :) Thanks for stopping by.

Posted by Stephen Kappre, Helping You Home (KW Hometown) over 10 years ago

I  had a client get approved at 589 with Wells Fargo. The loan officer did say that he was the last one they were able to do that way, but we are still able to get them approved at 600.

Thanks,

Joe Garcia

Posted by Joe Garcia (EXIT PERMIAN BASIN REALTY) over 10 years ago

Joe - Investors are cutting off at 620. I can still get them done under 620, but they have to go right to Fannie.  

Posted by Stephen Kappre, Helping You Home (KW Hometown) over 10 years ago

This is an old post but still very relevant and hopefully gets some traction again.  I am curious to find what you all are finding today with regards to this topic.   I personally am lucky to be able to close FHA loans down to a 560 credit score as of today 10/01/2009.  You are so right,many of my borrowers are actually very good credit risks even though their credit scores fall into the 560-619 range.  Oh yes the underwriting guideline overlays continue to mount but I still feel very fortunate to be able to close loans with fico's under 620.

Posted by John Swaino (WJ Bradley Capital Mortgage) about 10 years ago

John - Without exaggeration, about half of the loans in my pipeline are below 620. But soon, all regular FHA loans will require 620. Agency options may still exist below 620, only time will tell. Are your loans down to 560 manual u/w or DU approval required?

Posted by Stephen Kappre, Helping You Home (KW Hometown) about 10 years ago

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