Now might be a great time to buy a home.  With housing prices falling in most areas of the country and with the 10 months inventory of available homes continually supplemented with foreclosed and bank-owned homes, a would-be home owner with a steady job, sufficient income to pay the payments, and a down payment in hand is a welcome find for any seller and his agent.  What if the buyer lacks perfect credit?  Is this always a deal breaker?

Many current homeowners who need to refinance mortgages with negative equity, high ARM rates, or other terms that are drowning them in debt have a similar question: Will they be able to get loans if their credit has been damaged as they tried to pay their killer mortgages?

Unquestionably, having good credit, defined in terms of one's debt to income ratio, ability to make payments, and track record of doing so on time, makes getting a new mortgage or refinancing an old one easier.  Banks are always happy to lend to people with a debt-to-income ratio of 36%, a good, steady income, punctual bill-paying habits, and the required downpayment.  These "A" borrowers can even fall short in one area - such as having a higher debt-to-income ratio or showing a missed payment on their record - if they can compensate with a bigger down payment.  In better times, "A" borrowers were the "highly qualified buyers" who could drive away in new cars without down payments or get furniture deals that required no payments for 36 months.

Payment history for other borrowers receives lower grades:

A- Credit

• No more than two 30-days-late payments or one 60-days-late payment on revolving or installment credit 
• Charge-offs up to $500 okay
• Outstanding medical bills disregarded 

B Credit

• No more than four 30-days-late payments, two 60-days-late payments or one 90-days-late payment on revolving or installment credit
• Charge-offs up to $1,000 okay, but collection accounts less than four years old must be paid
• No bankruptcy or foreclosure within past 18 months

C Credit

• No more than six 30-days-late payments, three 60-days-late payments or two 90-days-late payments on revolving or installment credit
• Charge-offs up to $4,000 okay, but collection accounts less than four years old must be paid
• No bankruptcy or foreclosure within past 12 months

D Credit

• Pattern of disregard for timely payments
• Open collections accounts, charge offs, judgments must be paid through loan proceeds
• No bankruptcy or foreclosure within past 6 months

There are lenders who are willing to work with buyers with less sterling records, often at higher interest rates, but buyers need to shop around to find them as requirements vary from bank to bank.  Loan underwriting is somewhat subjective and tends to be more liberal when banks want to make loans.

Before beginning the search for a lender, or before seriously considering buying a home, prospective homeowners need to review their credit record and try to remedy anything that can be fixed in the short term.  Something like a bankruptcy takes seven years to fall off a credit record but the damaging effects of a few late payments can be overcome by making payments on time for 12 months.  Now that credit reports are free (once per year) or available for a modest fee, a person planning to buy a home in the future can check for errors on the report, dispute them, and have incorrect information deleted.

Those who want to refinance may benefit from the new loan modification criteria recently set by Fannie Mae and Freddie Mac.  As long as a mortgage holder has the ability to pay a newly-calculated mortgage payment of no more than 38% of his monthly income, past credit history will be downplayed.  This formula is expected to be adopted by most major banks since it will allow them to .process large numbers of loans more quickly.  Already there is criticism that this "formula approach" will set up banks and mortgagees for a future round of default - especially if a 38% house payment and other bills will keep newly-refinanced homeowners trapped in debt.  For as long as it lasts, this formula could open the door to refinancing to many delinquent borrowers who would have trouble qualifying for loans due to their credit histories.

For information on beautiful homes in Clark County, including bank owned properties available at great prices, contact your Prudential Americana Group Realtor® Yonas Woldu at (702) 236-8997 or visit www.VegasRealProperty.com. The N&Y team, lead by partners Nebi Adhanom and Yonas Woldu, is always ready to serve you.