FHA Toughens Down Payment Rules
F.H.A. will raise the minimum down payment for borrowers with a 580 or lower score, the agency announced Tuesday. Those borrowers will be required to put down at least 10%. Borrowers with a credit score of more than 580 will be able to still put down 3.5 percent, which is the minimum guideline currently.
FHA also will increase the mortgage insurance premium from 1.75 percent to 2.25 percent, which is the upfront cost for obtaining mortgage insurance. The premium amount that FHA will seek from the congressional government has yet to be announced.
For more information on the FHA changes, inlcuding a summary of all changes,
According to an article in the LA Times, homeowners who find themselves struggling with mortgage payments whether the situation is a short sale, foreclosure, or walking away from their homes, should look at how any of these actions could impact their credit scores.
Vantage Solutions, a scoring company created by the three national credit bureaus, suggested loan modifications may increase a borrowers’ scores, while refinancing mortgages that are upside-down may not have any or very little impact. Short sales on the other hand can trigger large declines in credit scores. Homeowners with an excellent score might see a 120 to 130 point decline after a short sale. Homeowners who walk away and stop making payments can expect their credit scores to dip 140 to 150 points. Those who file bankruptcy can have an average hit of 355-365 point drop.
Consumers who contact their lender early on may have less of an impact to their credit scores. In any of the above cases, if consumers are really having troubles due to the declining market, lenders will probably take this era into consideration when granting mortgage loans.
Since there are so many tips out there about how to improve one’s credit score, I though I would put my two cents out there. Fico scores are very important and often times determines the rate of interest you will pay on a mortgage loan, what type of financing you are able to get, and even if you can qualify for a mortgage. You can try these tips out and see what happens, or your Loan Officer can run a credit analyzer through the credit agency which will give you more specifics about what you can do regarding your specific credit situation..
First and foremost, have your Loan Officer give you a copy of your credit report…..
- To improve your credit score by 8-15 points try paying off any credit card balances that are less than $1000 and remember to leave the accounts open.
- Review your credit and look for any duplicate accounts. Have the credit agency remove any duplicates.
- Review your credit and look for multiple social security numbers. Advise your Loan Officer of any social security numbers that aren’t yours or your spouses. Have the credit agency remove them.
- Payoff any collection accounts that are less than 6 months old. This can potentially increase your credit score by 8-14 points.
- Of course during the loan process continue to make your payments on-time. Late payments can affect your credit score from 40-100 points.
- Review your credit report for any errors. Errors can be corrected with documentation and a updated credit report can be ran.
- Make sure you have at least 3 trade lines (accounts) that have been opened for at least 2 years and leave the accounts open (you can loose 7-12 points)
- Collection and charge-off accounts, even if sold to other companies, will remain on your credit until they are paid. Once paid, you may be able to have the accounts deleted. A lender may delete a late payment depending on the circumstances.
- Shopping around for another lender can cost you to loose 5+ points for each inquiry.
- Over time it can take 3 months to 1 year for on time late payments to improve your score after recent late payments, Bankruptcy, or Foreclosure.
Keep in mind these may not increase your credit score by these exact numbers, but this can give you a pretty good idea on how much of an impact a few changes can make. Again your Loan Officer can do this for you through a credit analyzer, but the cost of that will most likely be passed on to you…..
We might see more of a surge of home sales and loans if the lenders would loosen up their guidelines a little more. Now I’m not saying that they should go back to the lax underwriting guidelines that contributed to the housing crisis. But given the economy and the inability for the average American to place a decent down payment on their home, lenders can make getting loans a little more flexible.
Risk based: Lenders might want to take a queue from FHA, or the temporarily defunct CALHFA. Yes, they take a little more risk by lending on higher loan-to-values, but they have back it up with reasonable debt ratio guidelines and sound Fixed and Arm products. They don’t make negative amortization loans. And even with those borrowers who have lower fico scores, they compensate the risk with the appropriate rate.
A little flexibility and common sense: If a borrower is refinancing and happens to have very stable employment,excellent credit, low debts, and very low loan-to-value (30%), then let them have a interest-only loan or a 5 year ARM. But if another borrower had a BK discharge on their credit, but the debt ratio was 28%, and the loan-to-value is 90%,then that is someone who maybe could only qualify for a 30 year fully-amortized loan. If the borrowers aren’t qualifying due to the debt ratios, then maybe a 35 or 40 year loan would be the product that would fit.
Get things moving: The lenders are dealing with losses, but they can help on their end by making sound products that help borrowers with purchasing or refinancing. This could save jobs as the lenders are able to make more loans and increase volume. Taking some risks and making sure the products are sound might help to get the financial institutions moving again. 
