As most people who are shopping for a mortgage know-it's all about the credit score. There are other factors involved of course but the credit score is the singular indicator whether or not a borrower is deemed a good risk for repaying a mortgage or not.
The typically accepted scores across the board are 640+ for government loans, though there are banks and credit unions in our market that have raised the requirement even higher for their specific institutions.
However HUD is moving in an opposite direction allowing FHA to approve mortgage loans with credit scores as low as 550. Once again the choice of doing a loan with that credit score is left up to each individual lender. At Tippecanoe Mortgage we do have investors that will work with credit scores at that level, however, there are many specific conditions placed on the borrower with this type of credit score. Some of these qualifiers are:
Are twelve months cancelled checks available for rent payments to demonstrate on time rent?
If there are open collections (and for credit scores at this level there often are) have any new ones been opened in the previous 12 months?
If there are open collections, is there a payment plan that has been in effect showing 12 months payments on the open collections? If not the borrower may be required to payoff some or all of the collections-particularly utility collections or credit card write offs. If there are open medical collections, what happened and has any attempt been made to pay them?
If there are open judgments or tax liens they will be required to be paid.
Are there compensating factors such as a pattern of savings, good job history and income, or low debt
ratios that show that the borrower has demonstrated positive factors to be considered in the loan approval decision?
Has the borrower made on time payments on their consumer credit items such as vehicles and credit cards for a twelve month period?
If they currently have a mortgage, has it been paid on time for the past 12 months? How high are credit cards charged as compared to their limits?
Does the borrower have any insufficient funds checks over the past 12 months?
Is the down payment a gift or the borrowers own funds? Some lenders require a down payment to be the borrower's own money if the credit score is below 620. Some do not. Does this sound like
? ? ?No doubt about it, it is a lot of work. But before we start waving a big unfair banner...
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Let us consider a couple of points-
1) Lending is all about risk.
2) If someone is going to loan someone else a large some of money, the loaner wants to be able to make a fair assumption that the loanee will be able to pay the money back.
3) If past is prologue-and in many situations it is-if a borrower has shown no habit of repaying debt in the past, chances are they won't repay debt in the future.
The lender is the entity that is taking all the risk-and let's face it-lending money for mortgage loans is about reducing risk and making a profit if you are in the business of lending-so there have to be assurances that the borrower has the ability to repay and high odds that they will repay the loan.
What FHA and HUD are saying with the reduction of acceptable credit score is that they recognize that times have been hard in recent years and some people through no fault of their own are in situations that have diminished their ability to become homeowners. By lowering the credit score eligibility, HUD is allowing those people to get back on the housing horse so to speak. But even if you are one of those folks, no doubt there is
At Tippecanoe Mortgage we want to encourage everyone who wishes to own a home the opportunity to do so. However, we also have to be realistic. Many times we make suggestions for the borrower to improve their situation prior to ever completing a mortgage application. Closing loans in which the credit score is below 640 is tough. It consumes an inordinate amount of time both in origination, processing and underwriting. Therefore when we submit a loan with a lower credit score we want to be sure the borrower has a reasonable chance of becoming approved. Not only are we burning clock and money when we work on these loans, the borrower is spending money as well for inspections, appraisals etc. It is important to understand that loans with credit scores nationwide under 680 have an approval rate of 1 in 500. Typically our percentage of approval down to a 640 would be more than 95%, but the lower the score the harder it is. If you are highly motivated to purchase a home we may be able to help you, just keep in mind that what we want for you is:
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