Removing the Misconceptions on Qualifying for a Home Loan - Part One

There have been many reports that it is very difficult to qualify for a home loan. A lot of people think that they have to have stellar credit but that simply isn't true.

This is the first in a series where different loan products are featured with the guidelines that go along with those loan products.

Let's start with the regular "vanilla" conventional Fannie Mae fixed rate loan program. I will focus on "one unit" but other property types are available.    

For a primary home purchase or rate/term refinance: 97% loan to value requires a 700 score, 95% loan to value requires a 660 score and an 80% loan to value requires only a 620 or better score. *loan to value is the loan amount divided by the purchase price or the appraised value on a refinance. *rate/term refinance means no or limited cash out.

For a second/vacation home purchase: 90% loan to value takes a 720 score while an 80% loan to value takes a 620 or better.

For an investment/rental property: 80% loan to value requires a score of 620 or better.

Loan terms of 10, 15, 20, 25 and 30 are available.

Sellers' help toward closing costs are allowed as follows: For loans up to 75% loan to value, 9% is allowed on primary and second homes while 2% is allowed for investment properties. For loans with 75.01% - 90% loan to value, 6% is allowed on primary and second homes while 2% is allowed on investment properties. On loans with 90.01-97% loan to value, 3% is allowed on primary and second homes.

Home loans over 80% loan to value, (less than 20% equity) will need to pay private mortgage insurance or choose lender-paid mortgage insurance when locking in their interest rate.

As you can see here, many potential borrowers can surely qualify for home loans with credit scores at a minimum of 620. The misconceptions have been that you would need a credit score well into the 700s to qualify for a mortgage.

The guidelines listed above are for conventional fixed rate loans. There are other loan programs that I will be featuring in my next few blogs.