Marc Guzman
By Marc Guzman
We all know how important your credit score is when it comes to borrowing money for credit cards, auto loans and home loans. But how many of us really take the time to educate our clients on the benefits of preparing their credit score before they buy a home?
Buying a home can be very exciting and a daunting process. Home buyers do a lot from preparing paperwork for the loan officer, research and viewing properties with their REALTOR®, reviewing disclosures and signing paperwork, to saving enough money for the down payment. But in working with many buyers, both first-time and experienced, it is amazing to me how many buyers overlook the importance of their credit score. Many buyers think saving the down payment is sufficient as long as their credit score is above 620. You know that question, “What is the minimum credit score I need to qualify?”
But the truth of it all is, no matter what the credit score, it is important to begin working on improvements 6 months to 1 year before buying a house; longer in other cases. It takes some time to significantly increase the score. You may also want to partner with a company that specializes in credit counseling. Now why place so much emphasis on improving an already qualifying score?
- Average score for buyers using conventional financing is 760
- Average score for buyers using conventional financing in which the loans were purchase by Fannie Mae or Freddie Mac was 755
- Only 1 percent of loans were offered to buyer with less than 620 credit score
- 75 percent of loans were offered to buyers with credit score of Continue reading »
Dave Robinson
By Dave Robison
The Federal Housing Administration’s reserves are high, their defaults are low, and the average borrowers credit scores are 720. So why did FHA recently change premiums, etc.? Because of the annual audit.
FHA just had its annual audit that they reported to Congresss. Their worry was how the audit was going to turn out. They changed many guidelines recently in hopes it would help the audit. If it turned out well, they can show the market that government involvement in loans has been a good thing, as the private sector’s loans of no docs and stated income is what has caused the market to go down. Bad would mean that FHA’s reserve requirement was too low.
The reserve ended up decreasing by 0.5 percent.
FHA is striving to show that low down full docs are safe and they want to show the private market how to reduce risk and give more loans. We still have a ways to go during this downturn of the housing market. According to the audit FHA’s worst case scenario, they don’t expect to have their reserve requirement back up to 2 percent until 2014.
Right now there is another worry, though. Lenders making their own rules. Lenders aren’t loaning to individuals with scores lower than 700. FHA insures loans that lenders make as long as the loan package meets FHA’s guidelines. However, lenders have been setting their own guidelines even higher than FHA’s guidelines due to fear that they may be required to buy back bad loans. The big need in today’s market is to have lenders feel comfortable that they can give loans to individuals with lower credit scores. A big part of getting the market back is having these individuals with FICOS between 640 and 680 buy homes, including those individuals that are 1099.
To give an example, in 1999 the FHA only had 20 percent of market share and they gave more loans in 1999 to individuals under 700 FICO than all GSE’s combined (Government Sponsored Entities Freddie, Fannie, and FHA) this year.
NAR’s Federal Housing Policy Committee is continuing to work on keeping down payments at 3.5 and not increase to 5 percent. They also are working on keeping loan limits at current levels.
Dave Robison, known as “Utah Dave,” is a broker of Robison & Company Real Estate.
Brian Copeland
By Brian Copeland
Anyone who knows my business knows I pride myself on strong counseling of all my clients prior to any signed documents. It’s the secret sauce of my business.
This week, I messed up…bad! During the hustle and bustle of NAR Midyear, I had a remote buyer counseling session. I was so busy that I condensed the normal hour-plus session to a smooth 25 minutes. One of the biggest parts of the session is discussing pre-qualification and lending process. Since the buyer had checked, “Yes, we are prequalified with undisclosed mortgage lender,” I took it at face value.
Last week the buyer came to town. We spent two days together. We were ready to go to contract. Buyer says, “Oh by the way, my lender can’t do loans in Tennessee.” They call a lender I often use. They can’t even think about buying a home.
While my initial response was to internally be annoyed at the buyer, after about two minutes of mental processing, I realized I had used a short cut in one of my core business values. I realized this was solely my fault. I am the professional. It is my job to prepare and pave a path of success for all my clients. Continue reading »
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