Lenders continue to reject borrowers with otherwise good credit when they diverge from the standard approval checklist.
Would-be borrowers facing the most problems include the self-employed.
One reason bankers are so nervous are the standards held out by Fannie Mae and Freddie Mac. Not only are Fannie and Freddie demanding credit scores above 720, they are refusing to buy back defaults when the original mortgage application had small discrepancies from the norm. To avoid losses, lenders are being extra careful.
The result is that some borrowers are being rejected for problems that seem completely inconsequential.
Source: The Wall Street Journal, James R. Hagerty and Nick Timiraos (07/10/10)
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Don’t forget to remind potential buyers of something that is obvious to real estate professionals: Now is the time to buy, but that opportunity may be slipping away.
For people who have a job and money, a dream house is within reach, writes Marc Roth, founder of Home Warranty of America and a columnist for BusinessWeek.
He points out that mortgage rates remain low, prices are still at historic lows, and the government is offering incentives for first-time homebuyers.
He also adds that the inventory of homes to buy is still large, but it is shrinking. According to the NATIONAL ASSOCIATION OF REALTORS®, the housing inventory peaked in November 2008 at an 11-month supply. At the end of May 2009, it had fallen to a 9.6-month supply.
Roth says anyone who dallies will miss a good opportunity to buy a first home at a terrific price or go shopping for a move-up property that is a great buy.
Source: BusinessWeek.com, Marc Roth (11/17/2009)
These days one of the biggest impediments to closing a real estate sale can be the buyer’s ability to get a mortgage.
Here are some tips for anyone who hopes to land a loan:
Turn to the government. The biggest source of loans these days is the Federal Housing Administration (FHA) and the Veterans Administration (VA). These programs accept borrowers with lower credit scores and allow them to put down as little as 3.5 percent of the purchase price.
Document, document, document. Borrowers will need bank statements, brokerage statements, W-2 forms and tax returns.
Boost credit scores. Borrowers should avoid having more than one-third of their maximum borrowing capacity outstanding on one credit card. If necessary, rotate the debt among several cards.
Work your connections. Comparison shopping is easy online, but if your customer has an established relationship with a local bank, suggest they try that lender first.
Source: BusinessWeek.com, Christopher Palmeri (01/23/09)
Credit scores, along with your overall income and debt, are big factors in determining whether you’ll qualify for a loan and what your loan terms will be. So, keep your credit score high by doing the following:
1. Check for and correct any errors in your credit report. Mistakes happen, and you could be paying for someone else’s poor financial management.
2. Pay down credit card bills. If possible, pay off the entire balance every month. Transferring credit card debt from one card to another could lower your score.
3. Don’t charge your credit cards to the maximum limit.
4. Wait 12 months after credit difficulties to apply for a mortgage. You’re penalized less for problems after a year.
5. Don’t order items for your new home on credit — such as appliances and furniture — until after the loan is approved. The amounts will add to your debt.
6. Don’t open new credit card accounts before applying for a mortgage. Too much available credit can lower your score.
7. Shop for mortgage rates all at once. Too many credit applications can lower your score, but multiple inquiries from the same type of lender are counted as one inquiry if submitted over a short period of time.
8. Avoid finance companies. Even if you pay the loan on time, the interest is high and it will probably be considered a sign of poor credit management.
This information is copyrighted by the Fannie Mae Foundation and is used with permission of the Fannie Mae Foundation. To obtain a complete copy of the publication, Knowing and Understanding Your Credit, visit www.homebuyingguide.org.