What Credit Score Do You Need To Buy A House?

What Credit Score Do You Need To Buy A House?

What Credit Score Do You Need To Buy A House?

There are many misconceptions about the credit score needed to buy a house. Recently, it was reported that 24% of renters believe they need a 780-800 credit score to be considered for a mortgage. The reality is they are misinformed!

Only 25% of the Americans have a FICO® Score between 740 and 800. Here is the breakdown according to Experian:

  • 16% Very Poor (300-579)
  • 18% Fair (580-669)
  • 21% Good (670-739)
  • 25% Very Good (740-799)
  • 20% Exceptional (800-850)

Randy Hopper, Senior Vice President of Mortgage Lending for Navy Federal Credit Union said,

Just because you have a low credit score doesn’t mean you can’t purchase a home. There are a lot of options out there for consumers with low FICO® scores,”

There are many programs available with low or no credit score requirement. The Federal Housing Administration (FHA) now requires a minimum FICO® score of 580 if you want to qualify for the low down payment advantage. The US Department of Agriculture (USDA) does not set a minimum credit score requirement, but most lenders require a score of at least 640Veterans Affairs (VA) loans have no credit score requirement.

As you can see, none of them are above 700!

It is true that the average FICO® score for all closed loans in January was 726, but there are plenty of people taking advantage of the low credit score requirements. Here is the average FICO® Score of closed FHA Loans since April 2012 according to Ellie Mae:

As you can see, that number has been dropping for the last seven years. As a matter of fact, the average FHA Purchase FICO® Score reported in January 2019 was 675!

One of the challenges is that Americans are unsure about their credit score. They just assume that it is too low to qualify and do not double check. Credit.com confirmed that only 57% of individuals sought out their credit score at least once last year.

FICO® reported,

Since October 2009, the average year-over-year FICO®Score has steadily and consistently increased, from a low of 686 in 2009 to the latest high of 704 as of 2018.”

Here is the increase in the average US FICO® Score over the same period of time as the graph earlier.

Bottom Line

At least 84% of Americans have a score that will allow them to buy a house. If you are unsure what your score is or would like to improve your score in order to become a homeowner, let’s get together to help you set a path to reach your dream!

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Can a Mortgage Really Be Affordable?

Can a Mortgage Really Be Affordable?

Can a Mortgage Really Be Affordable?

Guest Post by Tim Britt

Last month I started a discussion about the different categories of mortgage programs.  Mortgage Loans can easily be broken down into 3 broad categories:  Traditional, Affordable, and Specialty.  This month, I’ll talk about Affordable Mortgage Loan Programs, and some of the features of them.

Affordable Mortgages are loan programs backed by government agencies, or specially designed by Fannie Mae and Freddie Mac (Conforming Loan Programs) to be affordable in a variety of different ways. 

These programs help borrowers realize their homeownership dreams through products featuring lower down payment options, lower loan costs, as well as lower credit thresholds (in some cases).  These also include Down-Payment Assistance and Grant Programs offered by banks through the Community Reinvestment Act or through state/local government agencies. 

I’m often asked…”what programs do you have for a First-Time Homebuyer?” 

Unfortunately, this question can be a little misleading.  In some cases, the person asking really wants to know if they can purchase a home without contributing any of their own assets (i.e. no down payment or closing expenses)…basically exchanging their current rent payment for an equivalent house payment.  This is not the primary purpose of Affordable Mortgage products.  These programs are not specifically designed for a “first-time” homebuyer.

Potential clients for Affordable Mortgages include those with moderate and lower income levels, some first-time buyers who may have lower down payment ability (e.g. less than 5%), as well as those who may have had past credit challenges. 

Some examples and highlights of these programs are:

  • Home
    Possible/Home Ready
    :  Conforming Loan
    Program(s) with reduced down payment requirements (3%) for clients earning no
    more than the Area Median Income.
  • FHA:  Government-insured program with lower down
    payment (3.5%) and reduced credit history/score requirements (versus
    Traditional or Conforming Programs).
  • VA:  For certain US military veterans – 100%
    financing program backed by the Veteran’s Administration.
  • USDA:  100% financing for homes purchased in certain
    rural areas, backed by the Department of Agriculture.
  • State
    Bond Programs (e.g. THDA)

    down-payment assistance and forgivable grant programs sponsored at the
    state level, usually in conjunction with the FHA Program.
  • Community
    Reinvestment Act (CRA) Programs:
      Programs
    offered by banks to borrowers who earn less than the Area Median Income.  These programs have a variety of features
    that are specific to each lender. 

Additionally, borrowers who would otherwise qualify for a
Traditional Loan Product, but are purchasing properties located in lower income
communities may also benefit from one of these programs. 

Keep in mind, however, that these programs are only available to consumers who can demonstrate a prescribed level of creditworthiness and financial responsibility, as well as the ability to repay the loan. 

A mortgage loan is a financial risk to a lender and the agency that insures or guarantees its repayment.  Lower down payments, reduced credit requirements, lower incomes…all increase the risk of a loan to a lender, as well as the agency who guarantees it.  Each of these programs has their own means for mitigating that risk.  Some of these include Mortgage Insurance, Funding Fees, or Guarantee Fees, all of which may impact the long-term cost of the loan program.  Be sure to understand these before committing to a particular program.

So – where do you start? 
If you feel like an Affordable Mortgage Program may fit your needs – give
me a call and I’ll be happy to sit down with you and discuss the features and
benefits of each, and help you choose the one that may be best-suited for your
particular situation.

Tim Britt

Tim Britt is a Senior Mortgage Loan Officer (NMLS 1369718) with Fifth Third Bank in Brentwood, TN. He can be reached at 615-415-8887 or [email protected].

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Does the Loan Fit?

Does the Loan Fit?

Does the Loan Fit? 

Guest Post by Tim Britt

You’ve heard the old adage “…if the shoe fits, wear it!” As we kick off 2019 and a new season of home buying and selling, I thought I’d borrow this cliché and apply it to the Mortgage Lending Process.  Just like with shoes, there isn’t a “one-size-fits-all” home loan program.  It’s vitally important that homebuyers seek sound advice from a reputable, licensed Loan Officer and understand all of your options for financing your new home purchase.  A mortgage typically represents the largest debt that most Americans will incur in their lifetime.  A poor decision on a home loan product can end up needlessly costing thousands of dollars over the life of the loan.

This is the first in a 4-part series on how to choose the best home loan program. 

Each part of the series will discuss a different category of mortgage loans.  When consulting my clients, I find it easier to start by finding the category that may work best for them, and then choose a program within that category that best meets their needs.  This month – we’ll talk in generalities about each category and some of their features and benefits.  Each month afterward, we’ll dive deep into each category and discuss the details of the programs within each category.

Mortgage Loans can easily be broken down into 3 broad
categories:  Traditional, Affordable, and
Specialty
.

Traditional Mortgages

Traditional Mortgages are loan programs that typically appeal to borrowers with established credit, with loans that offer fixed and adjustable rates and terms.  The potential clients for Traditional Mortgages are those who can afford relatively larger down payments (> 5%) and have higher credit scores (FICO > 700).  The overall benefits include allowing a borrower to choose from a variety of options, from short-term ARMs (Adjustable-Rate Mortgages) to 30-year fixed rates and just about anything in between.  Interest rates and overall loan costs are often lower, (although not universally).

Affordable Mortgages

Affordable Mortgages
are loan programs backed by government agencies or specially designed by Fannie
Mae and Freddie Mac to be affordable
in a variety of different ways.   These programs help borrowers realize their
homeownership dreams through a variety of products with lower down payment
options, lower loan costs, as well as lower credit thresholds (in some cases).  These also include Down-Payment Assistance
and Grant Programs offered by banks through the Community Reinvestment
Act. 

Potential clients for Affordable Mortgages include those with
moderate and lower income levels, as well as first-time buyers who may have
lower down payment ability, as well as those who may have had past credit
challenges.  The main goal of these
programs is to make overall home ownership more affordable, both at purchase
and over the life of the loan.  Borrowers
who would otherwise qualify for a Traditional Loan Product, but are purchasing
properties located in lower income communities may also qualify for one of
these programs.  These typically require
lower down payments, allow for flexible down payment sources, and may include forgivable
grants and/or secondary financing at low rates. 

Specialty Mortgages

Specialty Mortgages:  These products provide financing to clients with very specific needs that may fall outside the purview of a traditional or affordable mortgage program. They also provide financing options for those in specific professions (e.g. 0%-down programs for Medical Doctors).   Potential clients are those who want to construct a home or purchase a lot for future construction, individuals with current or prior military service, or professionals such as doctors and teachers.  These products provide funding for unique situations and often have lower down-payment and flexible financing options.

So – where do you start? 

It’s best to remember that mortgage qualification is determined by the CIA Analysis (not the spy agency!)  Look at your Credit, Income, and Assets.  Your FICO Credit Score, Gross Monthly Income (relative to your credit debt load), and Cash Assets available for the transaction will help you decide which category to begin your research in.  After that – give me a call and I’ll be happy to sit down with you to help you find the program(s) that may best fit your specific needs!  Remember – one size of Mortgage Loan does not fit every situation!

 

 

Tim Britt is a Senior Mortgage Loan Officer (NMLS 1369718) with Fifth Third Bank in Franklin, TN.  He can be reached at 615-415-8887 or [email protected]  The statements or opinions expressed are Tim’s own and do not necessarily represent those of Fifth Third Bank.

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