Have you been reading many posts that tell us that it’s a great time to buy now? Reasons cited are low interest rates, low home values, tax buyer’s credit (in the past), because there will be mortgage changes coming soon, and so much more? Have you heard the latest news now? Two major lenders are allowing buyers with credit scores down to 580. Sounds great, doesn’t it? But wait, is it great?
Do you want an opinion from a mortgage loan officer with 18+ years of experience that thinks with common sense, and not from the sales side of things? Don’t get me wrong, I love to make money, but I also like to be practical and to educate.
Do you know why these two lenders are jumping out of the window by lowering their credit score requirements? Mainly because HUD is forcing the hands of the larger banks. But I don’t want to get into the politics of things. Besides, there have been other smaller lenders that could go down to 580 in the last year, but with little success. Let’s evaluate these new changes regarding lower credit scores.
Requirements for credit scores under 600 ~
- You must have 5 percent down and the first 5 percent has to be your own money, meaning no gift funds from family members, no funds from non-profits, etc.. until after the initial 5 percent.
- Qualifying ratios will be strict, trying to keep them around 31%/43%, which are normal FHA debt-to-income ratio guidelines.
- Seller contribution will be limited to 3 percent.
- Last but not least, the rates or pricing for these types of loans will be more expensive.
What I just mentioned above are the basic changes for someone to have a shot at getting a mortgage. But wait, hasn’t it been difficult lately to get a mortgage, even with the guidelines that we have now?
I totally understand that there are some good buyers with low credit scores for various reasons, but I would have to say that this doesn’t fit the majority. Besides, I would rather educate the borrower on what needs to be done now so they can buy in two to six months. A true professional will either know how to fix their credit or refer them to a credit specialist.
Is it our natural instincts to want to help, but we cannot overlook the basics thinking that this would be good for the buyer now. What about that person that only has 5 percent of their own funds, yet now they have used up their reserves, having nothing to fall back on in case of emergencies?
All because we slammed down their throats that “it’s a great time to buy now.” In my opinion, it’s always been a great time to buy, when the time is right for that buyer. The right time is when they have been properly educated on the home buying process and when they have more than enough cash reserves for emergencies, etc.
Let me ask you a simple question
How do you think we got into this mess in the last three years? From the government pushing Fannie Mae to make home ownership more affordable. This started in 1999 when we had 100% financing come out, and where you could have a 55 percent back-end ratio, before taxes.
Sorry, but my common sense says that you are playing with fire on that one. What about those that did put 10 percent and or 20 percent down and still went into foreclosure? My opinion is that some just thought it was better to put more down, but the loan officer didn’t go into details if you used up all of your monies. If anyone follows my posts, I always preach, “Cash is King.”
So my last question- As a realtor, how does your fiduciary responsiblity sit with what I just mentioned? Do you push that it’s a great time to buy for your commission check? Will you push the lower credit scores? Just food for thought…