2012 Mortgage Loan Update
Most lenders are going to require a minimum 640 credit score to get a mortgage loan. This means out of all 3 credit bureaus your middle credit score needs to be a 640 or above. Now there are some lenders that will go lower on your credit score requirement, but the rules are strict. Most of these lenders will require down payment (No Gifts Allowed) and 3 to 4 months mortgage payment in the bank after you close. In most cases even though a lender advertises they provide financing for scores below a 640, the guidelines typically make it tough to get financed. Let’s just face the facts. If your score is below 640 in this current market it is extremely tough for banks to sell that loan to other banks. So most banks only finance loans that are marketable.
FHA has their own guidelines for loans they will insure. Remember FHA is not a bank, but a government agency that insures loans provided by FHA approved lenders. Even though FHA has its rules, a bank will have a set of its own rules as well. A bank in today’s market in most cases is only willing to finance FHA loans down to a 640 credit score. FHA however will insure loans down to a 540 credit score with 20% down. So there is a lot of confusing information out there about who will do what. You will find that most lenders will not provide financing for loans with credit scores below a 640. FHA also requires that you put down a minimum of 3.5% of the sales price.
Conventional loans are typically for borrowers with money to put down and good credit scores. Most lenders in this current market will require a 660 credit score to get a conventional loan financed. In most cases a credit score of 720 or above is ideal for conventional loans. Since conventional loans are approved through automated underwriting engines created by Freddie Mac and Fannie Mae, the higher your credit scores are the better terms you will get. Conventional loans currently require a minimum of 5% down of the sales prices.
VA loans are loans for veterans. This loan is 100% financing currently and most lenders require a 620 credit score. A DD-214 will be required to show you were honorably discharged. This is a very popular with veterans because of the terms.
USDA is a loan for rural areas. If you don’t mind driving from a suburban area, this is a great loan. The loan is 100% financing and currently some lenders will go down to a 620 credit score. You also must qualify with the medium income requirements for the area you are buying in. Like any loan there are restrictions with this loan, but the terms make it attractive for moderate income families.
Needs List for a Mortgage Loan
There is basic information needed to get a mortgage. Here is the list.
1. Last two years W2’s
2. Last two years tax returns (all pages) This is new and a couple years ago was only required for the self employed and for those whose income was 25% or higher commission based..
3. Last 2 months bank statements ( all pages)
4. Last 30 days paycheck stubs
5. Landlord Name & Number
The needs list provided is a standard list most banks use. During the application process a loan officer or underwriter may require additional information depending on your particular circumstances.
You’re Credit Report
An educated consumer saves money typically. Especially if you know what your credit scores are. After all lenders are in business to make money like any other company. If you walk into a loan application without a clue in regards to your credit report the lender will attempt to charge you more. Make sure you know what is on your credit report along with what your credit scores are with all 3 credit bureaus.
I don’t expect lenders to lower the bar anytime soon. After recent bank failures all over the country I don’t blame them.
The government is still pressuring banks to lend again, even after the recent banking debacle. A matter of fact all banks are lending to those who have the credit to get a loan. It only makes sense to lend to borrowers that show responsibility and have a stake in the loan which would be in the form of a down payment. Being able to get a loan with a 620 – 640 credit score in my opinion is still pretty risky.
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