Mortgage Loan Programs for Credit Challenged Buyers

Every time I turn on the television or listen to the radio I hear another media talking head share with the public that banks are not making mortgage loans for buyers with credit scores less than 680, 720 or 740. Well I want to first set the record straight that this is not entirely true.

Now Let me make myself clear that “YES WE CAN” get you a mortgage if your credit score is lower than 680. There are conditions, but it is possible and I do it everyday for a lot of my clients.

Now that I set the record straight, let me explain this a little further.

First of all, it depends on where you go to get the home mortgage. Some of the bigger commercial banks and other financial institutions only sell a certain selection of mortgage products. Most of these mortgage products are all credit driven loan programs and are called conventional loans. So if you go to one of these banks or financial institutions for your home loan they might give you the same answer that you have been hearing on the radio or television. For example, I have a client that just came to me for help with a home loan. She originally went to her credit union to get the loan before speaking with me. This credit union told her that she had to put at least 5% down and she needed a credit score of at least 680 to secure the loan. Since she did not meet this criteria the credit union informed her that they could not provide the loan. What she was not told was that there are many alternative mortgage loan programs for buyers who do not have to put 5% down or require a 680 credit score.

So what are the mortgage loan options if your credit score is below 680?

The best mortgage programs for buyers who are credit challenged are ones in which the loan program is not entirely based on credit. Most government backed loan programs fit under these criteria such as FHA, VA and USDA loans. These programs are what I call “Guideline” loan programs. Under these types of loans you can expect less amounts required for down payment and credit scores as low as 580. Now the catch is you must meet the loan programs “Guideline”. Most of these programs require at least 2 years solid employment in the same line of work with the ability to prove that you can afford the payment. Having money saved up in your bank or retirement accounts always strengthen the file. Credit is used and most of these programs look at specific patterns on your credit. For example if 6 years ago you had a bankruptcy and have started to re-establish your credit, and your new history has been clean for the last 1-2 years, you will probably get approved on your credit profile. These types of loans are all reviewed by a human underwriter and sometimes things from your past can be explained with letters of explanation. Basically your file is reviewed on a case by case basis based on the program guidelines that are set up for each one of these government loans.

If you have further questions and would like to discuss your situation further, please feel free to just drop me an email or just call me.

The Housing and Urban Development better known as HUD has finally halted abusive practices by home-builders in which they would revoke huge buyer incentives for not using their preferred/affiliated mortgage company. When a colleague of mine Tom Burris shared this with me, I was jumping up and down in excitement. Over the last 2 years I have written 4 posts about this abusive behavior.

Are Builders Violating RESPA with Using In-House Lending?
Home-builders and Abusive Practices
Should I use the Home Builders Lender?
I decided to try and take some action against Home-builders and Abusive Practices

Effective Jan. 16, 2009 a new home builder can no longer use “disincentives” to steer their customers to their preferred mortgage company. In practice, builders have for years offered huge monetary incentives to steer customers to their preferred/affiliated lenders. Likewise, if the customer chose not to use the preferred/affiliated lender a huge “disincentive” was created in that the monetary incentives were taken away. HUD makes it clear that economic disincentives that are used to improperly influence a consumer’s choices are as problematic under RESPA as are incentives that are not true discounts. Under the new rules a consumer would be more likely to shop for a home and the loan and settlement service that is best for them, free from the influence of deceptive referral arrangements. RESPA Final Rule:

Now for the 1st time both the consumer and the mortgage provider will have a fair playing field with the home builder. This will allow the consumer to have more options when shopping for a home loan. It also puts the control back into the consumers hand. During the last 3 years, I saw a lot of consumers who ended up with a bad mortgage because that is what the builders preferred lender offered them. When the consumer questioned the loan, the builder threatened to pull their incentives for walking away from that loan. Some of these same folks lost their homes because that preferred builder lender put them into a wrong loan product such as an adjustable rate mortgage.

Today everyone is always wondering what is going on in both the mortgage and financial markets. I am great at breaking down the mortgage markets, but I decided to team up with Fuller Asset Managment to provide my readers information on the Financial Markets. This will be a new segment that will be posted every month. Follow the link for more information about Fuller Asset Managment.

As Lawrence Fuller states: “We are in the midst of a synchronized global recession due primarily to an unprecedented contraction in credit availability“. This is defentiley the case we are facing today. Basically in todays business market cash is king. Lawrence states in his article that we need smarter government not bigger government. Lawrence finishes by stating that we will start to see an improvement in the credit institutions over the next couple of months.

The Perfect Home Buyer Storm

photo credit: Christoph Schweiger

Normally I am not one to predict the market when it comes to mortgage rates, home values, good deals, tax incentives or tax rebates, but the writing on the wall is extremely clear to me that we have entered into what I want to phrase “The Perfect Home Buyer Storm”. I have not known a better time for first time home buyers or step-up home buyers to take advantage of all the benefits that are out there right now.

Here is my list of things that have transpired to make this “The Perfect Home Buyer Storm”:

1. Home Values have dropped to the lowest levels we have seen in the last 2-3 years. I saw a HUD Home in my local market priced at around $29,000.00 dollars. Now this does not mean that some areas might dip lower, but it’s like buying a good value stock at the bottom of the market.

2. The Tax Rebates that the government is offering for first time home buyers is incredible. (Home Buyer Tax Credits Worth $7,500.00). With $7,500.00 worth of tax credits, this should give you another reason to move on these great offers.

3. Good Deals on homes are plentiful. 2-3 years ago everyone had multiple bids out there to get into a home. Today all the choices, colors, locations, prices,
amenities and sizes are available. With so many pre-foreclosures, bank foreclosures and HUD homes of your choice, there is a home to fit any household budget.

4. Uncle Sam is still offering tax deductions on mortgage interest. I know this is an old reason to buy a home, but it still makes my list of ideal reasons.

5. Interest Rates are at it’s lowest point in the last 5 years. With interest rates so low, the cost to borrower is less, which equates to very affordable mortgage payments. There are a lot of people who are currently paying more for rent than the cost of a mortgage each month.

Right Now is the time to take action and get pre-approved. This is like seeing Halley’s Comet . This is a once in a lifetime home buyer storm that might never come back this great.

Home Buyer Tax Credits Worth $7,500.00

If you are in the market to purchase a home for the first time in your life and want to take advantage of the down slide in the housing market, the government has just given you 7,500 more reasons to sweeten the deal.

On July 30, 2008 the President of the United States Signed into effect the Housing and Economic Recovery Act of 2008 or better known as HR-3221. This law basically created a special tax credit for first time home buyers to purchase homes and take advantage of $7,500.00 worth of tax incentives if a home is purchased between April 9, 2008 and July 1, 2009.

Let me share some important details about this program further. First of all to be eligible for the tax credit you must meet the following guidelines:

The tax credit is only available for first time homebuyers as defined by the government as being a buyer who has not owned a home in the last 3 years.

You must buy and close on the new home before April 9, 2009. If you buy after this date, the tax credit is no longer offered. So make sure you buy during this time frame.

The credit is available to single person taxpayer with an adjusted gross income of $75,000.00 or less or married jointly taxpayers with an adjusted gross income of $150,000 or less to get the full credit. Some Credits are available for those making more than the limits listed here.

(Please seek information from a professional tax preparer or certified tax preparer. I am not a tax professional and cannot give you tax advice.)

Now please be aware that anytime the government offers something for free, there is always some type of catch. The catch in this case is that the tax credit is not a free gift. This tax credit must be paid back to the government over 15 years at $500.00 a year starting with the following tax return after you received the tax credit. For example if you take the tax credit this year in 2008, then you start repaying the $500.00 a year on your 2010 return.