Many potential buyers think they need near-perfect credit scores to get a home loan. But lenders may be loosening their tight underwriting standards.
WASHINGTON — Are you on the home-buying sidelines this spring because you think you won’t be able to qualify for a mortgage? Do you know what sort of FICO credit scores are being accepted by lenders at the moment — they’re lower than they were a year ago — and whether yours could now be good enough?
You may be part of the surprisingly large crowd of folks who fear the home-loan unknown. A new national consumer survey found that 56% of potential purchasers of homes say they’re out of the market because they don’t want to face the possibility of rejection by lenders. Even 30% of current homeowners believe that they wouldn’t pass muster today.
Using a statistical sample of 1,055 Americans 18 and older, survey research firm OmniTel, polling on behalf of mortgage lender LoanDepot, documented widespread uncertainty and lack of specific knowledge about current market conditions when it comes to qualifying to buy a home. According to the survey, 74% of potential buyers who would need a mortgage concede that they have not scoped out the current market or taken the steps needed to qualify.
Many potential buyers believe that they need near-perfect credit scores to get a home loan. Half of those surveyed said they had no idea what minimum FICO score is needed for a mortgage, and nearly a fifth (18%) said the minimum score might be 770 or higher.
Debt-to-income ratios are another insurmountable obstacle in many potential buyers’ eyes — enough so that they don’t even try to obtain a mortgage.
Most lenders use two forms of debt ratios: a “front end” ratio that compares the monthly costs of the proposed new mortgage and other housing expenses with the applicant’s monthly income, and a “back end” ratio comparing all recurring monthly debt obligations — housing expenses, student loans, credit cards and the like — with the applicant’s monthly income. Roughly a third of potential buyers on the sidelines believe that their debt ratios are too high.
But what’s the statistical reality on debt ratios, FICO score minimums and down payments? What are lenders approving?
The best answers come from a company called Ellie Mae, whose loan origination and tracking software is widely used by lenders. Every month Ellie Mae analyzes a huge sample of new mortgage originations nationwide and issues an overview report rich with the sort of detail that buyers sitting on the sidelines could use.
Here’s what it found in its report on March:
•Thirty-three percent of new loans last month had borrower FICO scores below 700. A year ago it was just 27%. (FICO scores max out at 850, which is considered excellent credit; applicants with scores under 700 present higher credit risks to lenders.) Federal Housing Administration-insured home purchase loans had an average FICO in March of 684. Conventional mortgages, those designed for purchase by investors Fannie Mae and Freddie Mac, still have relatively high FICOs — they averaged 755 in March, but that was down slightly from 759 a year before. Lenders are doing far fewer refinancings this year, so they are loosening up on FICO minimums for purchasers.
•Debt ratios also are more generous than many sidelined potential borrowers probably imagine. The FHA’s average front-end (housing costs) ratio last month for purchase loans was 28%. In other words, if your projected housing and mortgage-related costs represent 28% of monthly income, you’re average. Fannie Mae and Freddie Mac loans averaged 22% ratios on the front end. Back-end (total recurring debt) ratios for FHA averaged 41%. For Fannie and Freddie it was lower — 34%.
•Down payments can be small if that’s what you need. FHA’s average down payment last month for home purchases was 5%, but many borrowers put down just 3.5%. Fannie and Freddie allow 5% down as well, provided that you can pay mortgage insurance premiums. VA loans can go to zero down if your veterans status allows you to qualify. Department of Agriculture home buyer loans, which are designed for people who live in small towns, also allow for no down payments.
The point here: If you’re on the sidelines, check out what’s really going on in the mortgage market. There may be more opportunities — even in an era of tighter underwriting — than you think.
Article by Ken Harvey
RATES Are down! Great news going into summer. I can assure you however that they are on their way up. The prediction is more towards the 5% and soon. If you know of someone looking to buy send them my way. I can get them pre-approved and out there looking ASAP! Read the Full Article here
REALTORS all over are preparing to take part in one of the biggest 2-day housing events of the year in Real Estate. This Weekend is OPEN HOUSE Weekend and I will be holding these two great houses open. Here are two incredible houses that if your house hunting you should not miss!
5322 114th St SE, Everett 98208– $355,000- Snohomish Schools! Come and see me on 5/17/2014 from 3-5
Welcome Home to Splendid Views of the Valley and Majestic Mountains from your front patio and upper level. Beautiful 4 bedroom, 2.5 baths with great room concept and large loft upstairs. Open kitchen w/lots of storage, NEW SS appliances including Refrig, new sink & disposal, walk-in pantry & adjacent dining area. New Paint and carpet. Snohomish Schools. Private setting bordered by greenbelt. Large fenced yard and terraced garden areas. Located at the end of a private drive in a quiet community.
13328 S Machias Rd, Snohomish 98290- $369,000. Come and see me 5/18/2014 from 1-3
Stunning and Grand this sophisticated home will make all your friends envious! Tastefully and completely remodeled from the studs out with the finest of details throughout. You will be amazed by the high attention to detail. Dream Kitchen with Quality Cabinetry, Stainless appliances & Designer lighting. Dining area, Living room, Family room, Office nook, Pellet stove, Wood stove and Full bath on the main. Four bedrooms and a large partially fenced yard complete the package of a home you can just move on into!
Hurry New Listing today! At $150,000 will go very fast!
FHA approved condo in a great location! Bonus 2 private Garages and a parking space!!! You wont find one like this! Perfectly maintained ground floor one owner condo in Autumn Brook. This two Master bedroom, two bath has it all. Tile entry, breakfast bar, dining area, gas fireplace, gorgeous updated baths w/ custom cabinets & granite counters in kitchen & one bath. Large patio over looking greenbelt. Quiet community tucked away w/playground & sports court. Close to Boeing, bus and shopping.
Our office will be having lots of Bank owned through Home Path in the next few months so check back and come and see this one today. At this price it will go fast!