There has been a loosening of mortgage lending guidelines across the board. From conventional mortgage loans to government back mortgages, it is getting easier to get a mortgage. Is this a good thing? It very well could be a good thing depending on your perspective. If you are struggling to save a down payment for example but have excellent credit you may be able to buy with less down. If you have less than perfect credit but make a good living there are options for you as well. Here are some of the ways in which it is getting easier to get a mortgage:
Conventional Mortgage Loans
Fannie Mae and Freddie Mac just announced that they are bringing back the %3 down mortgage loans of the past. They have announcing that they will be purchasing mortgage loans originated with a 3% down payment. These mortgage loans are based on their MyCommunity, Conventional 97, and Home Possible program guidelines. There are some additional requirements and you need to have excellent credit to qualify for these loans.
FHA Mortgage Loans
FHA has long been the leader of somewhat loose guidelines. There are home specific requirements that HUD imposes but FHA loans are what many loan officers saw as the replacement for sub-prime when that sector went away. Technically you don’t even need to have a credit score to qualify for an FHA mortgage. In reading FHA lending guidelines in the HUD Housing Handbook you will see that it is actually very easy to get qualified for an FHA home loan. However, there are what we refer to in the industry as “Credit Overlays” which is a lender specific assessment of how much risk the lender is willing to take on. While you could technically qualify for an FHA mortgage based on the guidelines, lenders have their own guidelines, in addition to HUD’s. The norm has been that you need a 620 credit score or better, at least 2 12 month old trade-lines (credit accounts) in good standing with zero late payments, and 1 month worth of reserves in the bank. More recently, lenders have been loosening their credit overlays making it much easier to get a mortgage. Now, many lenders have reduced that 620 to a 580 and removed the trade-line requirement. You will still need to have a month worth of reserves for principal, interest, taxes, and insurance. This loan requires a 3.5% minimum borrower contribution allowing you to borrower 96.5% of the sales price. It allows 6% seller paid closing costs and does accept allow you to use gift funds from a relative. To find out if you qualify for an FHA Home Loan click here.
Stated Income Loans
Yep, you read that right. Stated income loans have resurfaced but in very limited form. These loans of yesteryear were once referred to as liar loans and sometimes even drug dealer loans. They are not back in full form in the way that they were years ago but they are now available to investors. This does make some sense because investors are usually self employed and have a hard time proving income due to their allowable tax deductions. The Portfolio Product, as it’s being called, allows an investor to borrower up to 75% of the value of the home without having to provide any income documentation. However, 6 months reserves on all properties owned is a requirement so bank statements do need to be provided. Each lender is different but the majority of lenders are willing to go down to a 620 credit score as long as the reserves are their.
USDA Rural Housing Guaranteed Loans
This is a fantastic loan with a very low interest rate and the lowest PMI of any loan that requires it. Very popular in rural and even non-urban areas. To qualify for this loan you need to have a 620 credit score which is down from the 660 that is was only a few short months ago. This loan is capped at $171,000 in most areas and requires that you earn the average median income or less for the area that you are purchasing in. This loan allows you to borrow 100% of the home’s value and even allows 6% seller concessions (seller paid closing costs). It is not uncommon to be able to purchase a home with this loan with zero money down at closing, depending on the sales price of the home. If you receive 6% concessions on a home that is $110,000 or more, that usually covers all of the closing costs. There is a 2% government funding fee but that can be rolled in and financed over the term of the loan. The PMI on the USDA Home Loan is .5% which is much lower than FHA at 1.35% and even Conventional at .92%. If you are struggling to come up with a down payment (or just want to put down as little as possible) and are purchasing in a non-urban area, this is definitely the loan for you.
VA Home Loan
The VA Home Loan is very similar to the USDA Home Loan but you must be an eligible veteran to qualify. The guidelines are much the same including the current credit score requirement. Just like USDA, a 660 credit score was required by most lenders several months ago and more recently that score has been knocked down to 620. This loan also allows you to borrower 100% of the sales price and accepts 6% seller concessions. The primary advantage of this loan over USDA is that there is no PMI requirement! This is a true zero money down loan with a very low interest rate and no PMI.
see if you qualify for a zero money down home loan
In Summary
It truly is getting much easier to get a mortgage than it was immediately following the mortgage meltdown which precipitate the financial crisis of 2008. No matter what category you find yourself in, chances are you can get approved for a mortgage. If you have poor credit but some money in the bank you can get an FHA loan. If you have Excellent credit but can only come up with 3% down you can go conventional. No money to put down but earn the average median income or less and buying outside of a city, USDA. A veteran qualifies for the holy grail of mortgage loans, VA Home Loan. Yes, it is getting easier to get a mortgage!
(This is a re-post from my blog The Mortgage Daily Press - It is original content that I wrote and am re-posting here for more exposure)
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