difficulty of getting a mortgage...update?

happymary45February 20, 2009

Dave, you might help me with this one. I talked to a friend yesterday who told me that FHA has changed it's requirements to qualify for a mortgage now. She said they have gotten tougher than previously. My question is, does someone with a less-than-perfect credit score but a 20 percent downpayment have a prayer of qualifying for ANY mortgage anymore?

My credit scores are low mostly because I don't really HAVE that much credit.

thanks, everyone, and if this has been discussed recently my apologies.

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pamghatten

FHA requires a minimum 500 FICO, BUT most Lenders require a higher FICO.

A 20% downpayment will always help. If your credit scores are low due to little credit, FHA will allow a Lender to do a manual underwrite of your loan, instead of running it through their automated system. A valid FICO requires a minimum number of active tradelines, and if you don't have the minimum, the lender needs to look at other credit references. Rent payments, auto insurance payments, utiliyties, etc.

You need to sit down with aLoan Officer experienced with FHA loans.

    Bookmark   February 20, 2009 at 10:55AM
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happymary45

Thanks for the speedy response. My scores aren't THAT low, thank goodness. My friend indicated that she thought FHA wasn't allowing the manual underwrite of loans anymore. Has anyone else heard that? I can get with a loan officer and discuss. It's also fun to pick all the knowledgable brains on the forum. I have had a mortgage for 6 years and that's really about it for debt. I do pay my utilities like clockwork, though.

    Bookmark   February 20, 2009 at 11:05AM
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pamghatten

Some lenders will not permit a manual underwrite. They want the reps and warrants that go with the automated approval. But FHA definitely permits manual underwriting.

    Bookmark   February 20, 2009 at 12:22PM
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dave_donhoff

Hi Mary,
"Everything Pam said"....

You say "less than perfect" which frankly tells us all "less than much info' ;~)

If you're north of 580, you really ought to be fine.

Luck!
Dave Donhoff
Leverage Planner

    Bookmark   February 20, 2009 at 1:39PM
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chinchette

Two lenders yesterday sent us the memo. Need a 620 effective immediately for FHA. There may be some out there that will accept less, but if you find them, it may not last long enough to get the loan through.

I'd work on the credit score.

    Bookmark   February 20, 2009 at 4:01PM
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ncrealestateguy

I don't know what Pam is speaking of... Even when things were good, a 500 score was considered sub prime. If you have a 500 score now, forget it.
At least in Charlotte, NC, my preferred lender just passed along info. saying that FHA is going from a minumum score of 580 to 620. There may be slight variations on the score, but 500 will never be allowed.

    Bookmark   February 22, 2009 at 8:19AM
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dave_donhoff

Hi NCreg,

I don't know what Pam is speaking of...

I do. She's talking about the actual FHA guidelines. FHA doesn't actually make the loans, they insure loans that other banks make, and the degree of risk that the actual lending bank takes is relative to the degree of FHA insured coverage.

FHA still formally allows loans to be made, and insured by them, down to 500 credit scores... but at those levels the actual lending banks take a much bigger degree of direct risk in the case of default.

In essence, the "street increase" in minimum credit scores for FHA loans are the actual lending banks choosing to discretionarily reduce their potential risks... they only want to make the loans where FHA/HUD (and thus the tax-payers) carry virtually all the risk.

Cheers,
Dave Donhoff
Leverage Planner

    Bookmark   February 22, 2009 at 3:21PM
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ncrealestateguy

That's my point... It doesn't matter if FHA will accept a 500 score if there are no lenders that are willing to underwrite it in the first place. The poster wants real world advice. And around here, at least, you might find a lender to go as low as 580, but 620 is much more common as of a couple of weeks ago.

    Bookmark   February 23, 2009 at 7:10AM
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pamghatten

ncrealestateguy, did you read the entire 1st sentence?

"FHA requires a minimum 500 FICO, BUT most Lenders require a higher FICO."

    Bookmark   February 23, 2009 at 10:33AM
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ncrealestateguy

My bad pam...
Guess I was skimming your post as opposed to reading it word for word.

    Bookmark   February 23, 2009 at 5:22PM
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happymary45

so, bottom line is, if you have a credit score of at least 620 and a 20 percent down payment, you shouldn't have trouble getting a FHA mortgage?

    Bookmark   February 24, 2009 at 12:13PM
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pamghatten

correct mary.

    Bookmark   February 24, 2009 at 12:59PM
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ncrealestateguy

Mary,
If one was to take to heart what the media tells us day in and day out, one would think that it is difficult to get a loan. It is not. If you have 620 score or better, and 3.5% down payment, the banks will love you.
I am not sure where all of the hype is about banks not lending. I have not heard of a single agent co worker of mine tell me that their client was refused financing just because the lender was tight on credit. Not one.
Maybe the tightness of credit is more for business loans and not residential.

    Bookmark   February 24, 2009 at 1:38PM
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happymary45

thanks for the encouraging words. I'm working all of this out so that when we sell our house, I'm sure we'll be able to buy another! I always SO appreciate all the advice/knowledge offered here.

Mary

    Bookmark   February 24, 2009 at 3:14PM
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ncrealestateguy

Mary,
Please get preapproved BEFORE you put your home on the market, just to make sure you get yourself in a jam. god luck.

    Bookmark   February 24, 2009 at 6:55PM
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happymary45

Hmmm...How do I go about doing that? I won't be looking for a house until after I sell my house, so will the mortgage lender preapprove me when I'm not even looking yet, and also, when I don't know how much I will be able to sell my house for (and how much equity I'll be able to get out of it)?
thanks!

    Bookmark   February 25, 2009 at 11:33AM
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xamsx

ncrealestateguy : I am not sure where all of the hype is about banks not lending. I have not heard of a single agent co worker of mine tell me that their client was refused financing just because the lender was tight on credit. Not one.

It is in the commercial and multi-family (apartment complexes) areas for certain....the agencies were the ONLY place to get a loan for certain types of transactions for nearly a year. When the feds got into the act it loosened up some, although not for all, multi-family loans. The fed actions didn't help commercial.

The news organizations seem to be a few months behind the times on what is going on in the credit markets. In January of 2008 I went to a large banking convention and all anyone could talk about was the frozen credit market and foreclosures... this was a bit before the news started reporting as a mantra.

    Bookmark   February 25, 2009 at 12:31PM
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pamghatten

ncrealestateguy, thank you for saying that ... I totally agree. Our bank is buried with refi business, we have plenty of money to lend. The difference these days, is borrowers need to actually quailfy for a mortgage and have a downpayment! Imagine that!

Mary - a loan officer could at least give you an advance idea of based on hypothetical scenarios, of what you can qualify for, and if your credit profile presents any obstacles.

    Bookmark   February 25, 2009 at 12:50PM
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ncrealestateguy

Bingo Pam,
I get clients preapproved all of the time now. And like you say, they just now need to have some sort of down payment and a half way decent credit score.
I even got a client approved for a self storage unit, about 2 months ago, and I have a client right now that is buying a 5 unit retail building for 1.2 million. He is putting down about 50%, but I still don't see the credit crunch that the media spews about every night.

    Bookmark   February 25, 2009 at 3:47PM
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