From the latimes.com:
Could gloomy popular assumptions about how tough it is to get approved for a mortgage be scaring away large numbers of qualified people?
You bet. Lenders and economists will tell you flat out: The lack of accurate information about the availability of loan programs designed to address special needs is discouraging far too many consumers from even considering an application, much less shopping around.
For example, what’s needed for an acceptable down payment? Is it 20%, 10%, less?
Yes, it’s less – and potentially a lot less if you qualify for the right program. The widespread erroneous assumption that banks require a minimum 20% for conventional loans may have arisen from heavy media coverage of a controversial proposal by federal agencies calling for borrowers to put down that much if they want to get the best interest rates and lowest fees.
If you have little or no cash to put down, there are multiple options: The Federal Housing Administration requires just 3.5% down on its insured mortgages. Other programs let you go to zero — even finance more than the price on the house when fees are rolled into the mortgage — provided you fit into an eligibility niche. If you qualify as a veteran or active member of the military, you can get a zero-down Veterans Affairs-guaranteed mortgage. Plus the VA allows your seller to pay your loan fees and closing costs provided that they don’t exceed 6% of the house price.
What about credit? Haven’t lenders been pushing up minimum FICO scores into the mid-700s and rejecting applications with lower scores outright? Not everywhere. Though most lenders doing FHA loans require 620 to 640 scores to get you in the door, a few of the biggest FHA originators, such as Quicken Loans, will accept scores down to 580. Bob Walters, Quicken’s chief economist, says underwriters scrutinize low FICO applications extra carefully but are seeing good to excellent performance from them: Not one has gone seriously delinquent this year.
And how about debt-to-income ratios? Aren’t they tighter than ever? Not really. Lenders say that when loan applications go through the “automated underwriting” systems used by Fannie, Freddie and FHA, borrowers with high total monthly debt levels of 45% to 55% of household income — well beyond the posted limits — frequently get approved if they have positive compensating information elsewhere in the application.
Bottom line: Don’t assume you can’t qualify for a mortgage in 2012. Talk to lenders and seek out loan products that offer flexibility where you need it. You just might be surprised.
3.5% or 0% down…FICO scores in the low 600’s….debt levels of 45% to 55% of household income….
Haven’t we seen this bad movie before?
This is isn’t about people not being able to qualify for a mortgage or people not knowing they can qualify for a mortgage. This is more about people not wanting to get a mortgage in the first place or rather more likely people just stretched too thin to consider getting a mortgage.
A person with a 600 FICO, barely 5% down payment, and/or above a 50% household monthly debt levels is most likely a person that just got burned by real estate in the past few years.
JS Guy, So, what’s your point? Don’t you think that getting these folks that got burned back into homes might be a good thing?
You always have to talk to a reputed lender in your community to get the best interest rates and low down payments. If you are a veteran, you can get a loan with zero downpayment if you qualify.
Thanks for the tip, but this blog has a realtor already. You are welcome to read.
Just my 2 cents….looking at my old home town in California…where houses went for 300K at the boom and are now 100Kish… If someone with a 600 score and 0 down got a 100K house it is not a bad thing at this point in time.
The problems arose when these people bought 300K houses (that were not worth anything NEAR that).
So yes we have seen these stats before, but now they are stats for 100K houses that are worth about 100K (using rent ratios)….so……the RESULTS will most likely not be the same as we saw before.
One could even argue that the people who have jobs today are probably pretty good risks (i.e. they were able to stay enmployed through the massive weeding of people we have seen in the labor force) no matter their credit score.
I’m interested in the anecdotal evidence. Jim, what percentage of the people that called you this year because they wanted to buy a house and were apparently qualified could actually get a mortgage? How many deals with loan preapprovals got kicked out because the lender got cold feet at the last minute? I hear a lot of war stories about both situations.
100% but I am very lucky to have highly qualified people come my way.
But I utilize extremely effective lenders who know their stuff too. There are cases when buyers want to use their own lender and those get screwed up occasionally but my people will take over and find a way to make it work.
When buyers are qualified or approved one day and then are told they aren’t later, it is almost always because the loan rep doesn’t know their stuff, or an indecisive underwriter who won’t keep their word.
Last year I got approved for $450K at 100% with only 5 minutes of verbal discussion required. I have “no” credit score because I have never used credit. I was surprised as the bank was literally encouraging me to up my ante and offering more. I got this offer extended twice. Didn’t use it. I believe the real story is that since everyone has a credit score (worse than me, having “no” credit score), it is more difficult to get a loan. The bank continually acted surprised when I repeated “yes, this is my first loan, ever”. They must have thought they had finally found the last known sucker on earth. Too bad for them they didn’t suck me in.