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Are banks lowering their requirements for home loans?

Posted by newhomeseeker (My Page) on
Thu, Feb 4, 10 at 8:21

How is it in this economy and with the banks tightening their belts that the person/situation I'm about to describe is possible? A relative asked me to let her know if I am aware of any houses she might be interested in. She is preapproved for up to a 98,000 loan. Now I live in an area where this is the price of a fixer-upper or starter home. She is single with two kids and makes maybe $10 hr. She is a nurse's aide so I'm guessing she probably makes less than that. The starting wage for a nurse's aide in my area is $8 hr. She does not receive child support for either child. She has been at her job for less than six months. Before that she was collecting unemployment.

She filed bankruptcy 9 years ago (I know it would be off her credit report by now but I doubt she has established much credit in that time) She made payments on land and a trailer but it wasn't through a bank so there wouldn't be a record on her credit report. She has no assets. She might have a down payment of $2000 at most (probably tax rebate money) I thought your house payment should only be up to 33% of your income. Why would a bank give someone with hardly any income a loan for almost a hundred thousand dollars? Now I realize it is just a preapproval but it blew my mind. I know there are still programs (goverment) like USDA Rural Development loans and things of that nature but I thought even those require a high credit score and a 3% down payment. Have things changed?


Follow-Up Postings:

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RE: Are banks lowering their requirements for home loans?

Banks have not lowered lending standards; if anything they have tightened them. The most I could see her qualifying for would be around $60k.

Either there is something positive about her financial situation that you are unaware of (e.g. she has a cosigner, or qualified for some sort of loan program), or she has not really been pre-approved.

I have a relative who is in real estate and she tells me that she often has people come in who had used those online "How Much House Can I Afford" calculators and refer to that as their "pre-approved" amount. Often they would go to a brick and mortar bank and discover that they couldn't get a loan for anywhere near the calculator results number.


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RE: Are banks lowering their requirements for home loans?

It sounds like you are making a lot of assumptions and don't have many actual facts. You are guessing about her income. You are guessing about her savings. You are guessing about her credit.

Since she is family, I would suggest you send her links to the listings of some properties she might like. It will only take you a couple of minutes to pull that together. If she wants to take it to the next level and have you show her any of these homes, then you need to take it to the next level professionally as well. Tell her you need a copy of her preapproval letter so you will be prepared to act quickly if she decides she is interested in a property.


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RE: Are banks lowering their requirements for home loans?

A BK is not off your credit report until at least 10 years. I say "at least," because it tends to linger until the end of the calendar year. Even so, a BK is not a huge impediment to a secured loan like a house, provided it has been fully discharged and isn't still pending in the courts. If she has reestablished credit in the 9 years she can certainly get a home loan, although probably not at top tier rates.

Pre-approval letters are not necessarily good indications of a loan approval. From what you say, she should probably not be looking to buy until her situation stabalizes, which you can gently suggest to her. A fixer-upper home to someone with limited funds is a disaster in the making.

But you are making a lot of guesses about her finances and you don't really know the facts, so I would withhold judgement about what is going on.


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RE: Are banks lowering their requirements for home loans?

Well as to the mortgage products that are out there ...

FHA will allow a credit score of 580 and above, and while they do require a 3.5% downpayment, that money can come from gifts or grants. Some of this may change this year.

USDA loans will finance 100% of the appraised value, so if the appraised value is higher than the sale price the borrower can roll closing costs and prepaids into the laon amount. The minimum FICO on USDA loans is 620.

There are also local bank loan programs for underdeveloped urban area's that will lend 100% too. These programs usually require the borrower to attend homebuyer education classes.

Not ALL standards have tightened .. but the documentation requirements have greatly changed, thankfully.


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RE: Are banks lowering their requirements for home loans?

Pamghatten: Not ALL standards have tightened .. but the documentation requirements have greatly changed, thankfully.

Well, I'm not quite as thankful as you are since an underwriter rejected my mortgage application one week before the scheduled closing.

Before I get into the particulars, let me give a little primer to those of you not familiar with federal employment and retirement:

Although separate agencies within the federal government hire and employ their employees based on their own rules and regulations, there is one central personnel agency that handles benefits such as retirement for everyone: the Office of Personnel Management (OPM). When an employee is getting ready to retire, their own agency can provide a benefits statement indicating what the estimated annuity will be, but it is subject to review by OPM and is not official until OPM performs their own calculations, sometimes 6-8 weeks after you retire. I'm sure that you can see where this is going....

My agency's HR department provided a memo to Bank of America indicating what my "estimated" annuity will be, down to the penny. The memo literally said that my present annual salary is xxx,xxx and that the gross annuity would be x,xxx.83 per month and the net after taxes and other deductions would be x,xxx.71 per month. Once OPM conducts their own review this could change by a few dollars a month; however, we are talking about a possible change of .001 of the total amount.

Nevertheless, because my agency (or any federal agency) is only allowed to say that the amount is an "estimate," the underwriter would not approve the loan at this point in time.

Oh, did I mention the fact that I was already putting down over $200,000 (~50%) and also have a FICO of 800?

Fortunately, the proceeds from the sale of my house in Bethesda last November were still in a money-market account and were more than enough to pay cash for the house in Las Vegas, otherwise I would have had to sell equities to purchase the house (either that, or let the sale fall through).

We've gone from an era where underwriters would approve loans to anyone with a heartbeat, to one where people with guaranteed incomes for life and a seven-figure net worth can't qualify for a loan


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RE: Are banks lowering their requirements for home loans?

The problem is you are dealing with BofA.

Not all lenders are as stupid as they have been.

Remember who purchased Countrywide.


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RE: Are banks lowering their requirements for home loans?

Bethesdamadman -- my son in law is a mortgage broker and is seeing many many stories like yours. There needs to be an in between. We certainly don't need 100% mortgages going to people just because they breathe. But we do need some common sense when it comes to lending money to credit worthy consumers.


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RE: Are banks lowering their requirements for home loans?

It seems to me the Big Money center banks have clamped down on loans,apparently as tight as they were "loose" a few years ago..I refi'd from Chase (who were miserable) to a local credit union, who were beyond accomadating...I'll bet shopping local for a lender is a much better idea then a "national" lender...also doesn't help B-Man relocated to Vegas,not quite ground zero for lousy loans and falling home values, but pretty close


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RE: Are banks lowering their requirements for home loans?

Vegas,not quite ground zero for lousy loans and falling home values,

Au contraire!


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RE: Are banks lowering their requirements for home loans?

Speaking of falling home values in Vegas....

The sellers of the house I just bought in Vegas only owned it for 2 1/2 years and paid $365,000 more for it than I did. (Now that's a haircut!)

In fact, I paid $40,000 less for the house than it previously sold for in March 2000.

Talk about your lost decades....


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Going under, please help

I bought my dream (back then, now it is my nightmare) in July 2008, with a 5% downpayment on a 5.75% interest and and paid $335K. The original price was $420,000.

Anyways, now I know why people skipped this baeutiful; on the outside with 5 rolling areas of meadows and gardens, it is truly breathtaking.

Before I signed the deal, I had a job - a contract that would put me through Dec. at 80K and another job from then till the end of 2009 at 80g. Well, the 80K contract tht I signed up with some very well known SciFi actors scheduled the next 6 months around it, only to find it was a Bernoff case by a pimple-faced kids jerking us around in his mother's basement. So no I'm out a job and just bought a house.However, my part time job was always with my family's company doing accounts receivable and loved it.

Plus, my boyfriend who moved n contributed when he could; he is a seasonal concrete worker. The first couple he paid 1/2 the mortagage and 1/2 the bills and then 1/2 of nothing. We split up, have our own rooms and are fine with that. He has NO wear to go at 50, I'm 38, to I let him stay here to fix stuff for me around the house.

I'm selling in the spring and want to desperately get on with my life. I've exhausted all my savings and part of my state requirement I'm got bills galore. But, I do have a god job that is working with me and my illness (Crohn's disease and Lyme's Disease) and hey were able to get my laptop remotely hooked up to theirs. This was a godsend. No more 2.5 hr of commute time!

I digress: To sell the house I need a $10K loan mostly for my kitchen,paint and some staging. Do you think my lender would deny me because I don't have enough equity in the house? Or that I could look at the fact I have been steadily employed for over 10 years and my score is 750?

What do I do???? Any advice for his newbie??
Thanks in advance,
Clover


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RE: Are banks lowering their requirements for home loans?

What do you do? You don't throw more money into a house you already cannot afford, even in the unlikely event a lender would give it to you.

The first rule of being in a hole is to stop digging.


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RE: Are banks lowering their requirements for home loans?

"Plus, my boyfriend who moved n contributed when he could; he is a seasonal concrete worker. The first couple he paid 1/2 the mortagage and 1/2 the bills and then 1/2 of nothing. We split up, have our own rooms and are fine with that. He has NO wear to go at 50, I'm 38, to I let him stay here to fix stuff for me around the house."

clover8, are you saying that you have ended the romantic relationship with your boyfriend, but that he still lives with you (sleeping in another bedroom, and without any "benefits")? I've never heard of that situation, but it sounds like a reality show to me!


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