That is the big question these days, especially with first time home buyers. So many people are wondering . . . "I wonder if I could qualify for a home loan? My credit score isn't that great, Mark, but I have a good job and good income."
Well I have some GREAT news for everyone.Â Maybe you're a first time home buyer.Â But maybe, on the other hand, this ain't your first rodeo!Â It's all good.Â Let me share a news flash with you. Here it is . . . .EDINA REALTY MORTGAGE CAN NOW DO LOANS FOR BUYERS WITH CREDIT SCORES DOWN TO 500!!!!
I got wind of this last week, but was told to keep my trap shut until we obtained all the details.Â In my world you MUST have facts.Â And let me say first of all that Wells Fargo is piloting this. They were the ONLY bank through that whole mess we went through a few years agoÂ that stayed in the black. Remember?Â Remember all those people gettin loans just because they were able to fog a mirror? IÂ met a kid that was 19, working part time, who somehow got approved for a $750,000 mortgage and got a cashier's check for $100,000 at the table!Â I had a client losing everything that purchased 13 homes with not one dollar down.Â In fact, they paid him $10,000 cash for each one he signed for.Â Well, he lost every one of them.
Anyway,Â the reason thatÂ WF can feel confident with this new program is because they were very careful and did not get heavily involved in subprime loans, and that is where Edina Realty Mortgage (ERM) gets their money.Â That's also why ERM proudly can say that they contributed little or nothing to that crisis.
They have very carefully studied the statistics and demographics on loan defaults. And thus they have specific and special guidelines for these loans to reduce the risk of default.
So here is how it works . . . the borrower must meet the following criteria:
â€¢ Purchase transactions only- refi's not allowed
â€¢ No gift funds are allowed
â€¢ No DAP's are allowed
â€¢ Must have either 5 or 10% down payment, sourced and seasoned
â€¢ Stricter debt ratios and potential reserve requirements
The target customer for this program is someone who has challenged credit, but has the necessary down payment and reserve requirements. As far as I know, Edina Realty Mortgage is the only lender offering this program!Â Utilization of this program could add as much as 25% new business!
So let me recap for you . . . .
Virtually all lenders have a minimum credit score of 640.Â There are a select few that can go down to 620.Â Only Edina Realty Mortgage and Wells Fargo can go down to 600. Again, this is what I have been told.Â That has been in place for awhile. And this is for a FHA loan with 3.5% down payment.Â
This new rule allows someone with a score between 580-599 to get a FHA loan, but they must put 5% down and it must be THEIR cash.
It allows someone with a credit score between 500-579 to still get a FHA loan, but requires at least 10% down.
The way it was explained to me was simply that based on statistics, with property values increasing steadily now, and the fact that these buyers put in a decent amount of their own cash, there is a minimal risk of default. But as I shared above, the other caveat is that there are slightly stricter debt to income ratios and other reserve requirements.
That all said, remember that I am NOT a loan officer. I am an expert in real estate. But in order to be an expert at what i do I need to have my arms around all of this information to properly guide buyers and keep them informed.Â I'd be glad to refer you to a good loan officer who can answer any questions you or anyone else has. I try to stay out of all that.
That said, would you like to know an interesting statistic? I actually have my notes from a session I attended last week. Check this out . . .
In a recent national survey by the NAR, 88% of first time home buyers believed that applying for a mortgage would be very difficult and did not feel they would qualify.
68% said later - after the fact - that it was "not at all difficult".
And the best part:Â ONLY 5% OF THEM DID NOT GET APPROVED!!
Translation:Â the vast majority of first time home buyers, almost 90%, did not beleive they could get a loan.Â Yet 95% of them were approved for a mortgage! Isn't that crazy????Â I believe this is all because they watch too much "slanted" news reports that are drawn out and sensational.
So if you are reading this, please stop second guessing the market.Â Stop paying rent and get approved for a mortgage and go buy a nice home!Â The home affordability index is the highest it has been in over 50 years, the rates today (literally today) are lower than the average daily rate through 2010, and the home prices bottomed out about 13 months ago . . . fluctuated up and down a bit . . .and now are moving steadily up. At the rate things are changing, the average person/average loan amount is losing somewhere in the neighborhood of $5000-8000 worth of buying power every month or two.Â
The timing to own your own home has never been better.