These new credit score requirements are intended to put home ownership within reach for lower-credit score borrowers.

Check your FHA home buying eligibility here (Sep 16th, 2024)

What are FHA credit score requirements in 2024?

The Federal Housing Administration (FHA) requires a credit score of at least 500 to buy a home with an FHA loan. A minimum of 580 is needed to make the minimum down payment of 3.5% of the total loan amount. However, some lenders require a score of 620 to 640 to qualify.

Thanks to a new 2017 FHA policy update, many lenders have reduced their FHA minimum credit score requirements, opening homeownership to thousands more buyers.

Analysts predict the change could allow 100,000 additional families per year to buy a home with an FHA loan.

Since its inception in 1934, the FHA loan program has enabled more than 40 million families to buy or refinance property. Its extreme popularity is a direct result of its flexibility. The program was built from the ground up to promote homeownership among a portion of the population that would not otherwise qualify.

Check your FHA home buying eligibility here (Sep 16th, 2024)

What credit score do you need to buy a house?

It’s possible to get an FHA loan with a credit score of 580 or 500, depending on the size of your down payment. VA, USDA, and conventional loans do have a set minimum credit score but lenders will generally require a credit score of at least 620.

Of course, remember that the minimum square will tell you what’s required to qualify, but a lower credit score also usually means higher interest rates.

This table outlines the minimum credit scores typically needed to buy a house based on the type of loan: conventional, FHA, VA or USDA.

FHA beats conventional loan flexibility

Conventional loans offered by mortgage giants Fannie Mae and Freddie Mac certainly have their place in the market. But they are not very flexible regarding certain loan criteria. FHA fills in the gaps by offering mortgage approvals to those with:

Check your FHA home buying eligibility here (Sep 16th, 2024)

• Medium to low credit
• Lower income
• Income from numerous sources
• Co-borrowers who do not plan to live in the home (non-occupant co-borrowers)
• Down payment gift money, but no down payment of their own
• Properties that are in need of repair

Without FHA, millions of homeowners would be stuck renting years longer than they should. Yet, there is still room for FHA to expand its capacity to serve more aspiring homeowners.

FHA lenders don’t always follow FHA credit score minimums

Banks and mortgage companies that offer FHA loans are not required to follow FHA guidelines to the letter.

These are private, for-profit companies that simply approve loans based on guidelines provided by the government agency. But most important to the lender is whether a borrower will be able to make the monthly payments for the loan amount, which means they will evaluate your personal finances more holistically, and will look at factors besides your credit score, including your monthly income and debt-to-income (DTI) ratio.

Check your FHA home buying eligibility here (Sep 16th, 2024)

Many lenders across the country impose tougher guidelines for FHA loans than the FHA itself. It doesn’t seem to make a lot of sense until you realize that FHA penalizes lenders for approving too many bad FHA loans.

Statistically, borrowers with lower credit scores default more often. That’s why many lenders require a higher minimum credit score than the FHA.

Here are credit score minimums as stated by FHA:

• Credit score at or above 580: Eligible for 3.5% down payment
• Credit score of 500-579: Must put 10% down, but still eligible
• Credit score below 500: Not eligible for FHA financing

Most lenders require a score of at least 620-640. But that number could drop closer to FHA’s published minimums because of the updated policy.

FHA policy updates have made it easier for low-credit borrowers to qualify

In 2017, the FHA added another layer of evaluation to their current method of identifying high-risk lenders.

Check your FHA home buying eligibility here (Sep 16th, 2024)

Former policy

The FHA’s sole method was to compare an FHA lender with other FHA lenders in the same geographical region. This is known in the lending world as the FHA “compare ratio.”

If a lender had 150% more late-paying loans than other area lenders, it was at risk of getting kicked off of the FHA’s approved lender list.

Many banks and mortgage companies had a problem with this method. If nearby lenders had tougher FHA qualification standards and therefore a better book of loans, other area lenders would look comparatively worse.

In theory, an FHA lender could be shut down because the FHA lender across the street raised its minimum credit score requirement from 640 to 680.

This can and did lead to an escalation of sorts – lenders raised their minimum FHA credit score requirements as high or higher than their competitors. FHA’s own policies counteracted its mission to provide access to homeownership to less-than-perfect borrowers.

Updated policy

While the FHA did not end the “compare ratio” method altogether, it added another layer of evaluation.

Now, the FHA separately examines late-paying loans based on the borrowers with credit scores of:

• Less than 640
• Between 640 and 680
• Greater than 680

How does this help borrowers with lower scores?

A lender is no longer at risk of losing its FHA credentials if its lower credit score loans are performing similarly to loans within the same credit score bracket. In addition, the comparison will be made nationwide, not just in the lender’s geographical region.

Here’s how it might look in real life. Lender X issues 100 loans to borrowers with scores below 640. Three qualifying borrowers eventually stop making their payments, giving Lender X a “bad loan” rate of 3%.

Lender Y across the street issues 100 loans to borrowers with scores above 680. Only one doesn’t pay his mortgage, giving Lender Y a default rate of 1%.

Under the old rules, Lender X might be in trouble. His “compare ratio” is 300% — double the acceptable level. At this point, Lender X raises its minimum FHA credit score to 680.

Under the current rules, Lender X might be just fine, because FHA compares its default rate to the national average for loans with credit scores below 640.

Now, Lender X can continue helping underserved home buyers, in tune with FHA’s core mission.

In short, this policy may help to maintain the number of lenders available to borrowers with credit scores that do not meet the minimum requirements of non-FHA loans.

Check your FHA home buying eligibility here (Sep 16th, 2024)

When can lower credit score borrowers apply for an FHA loan?

The policy has been rolled out for a few years (since 2017), so your chosen lender may have changed its internal policy already.

Typically, there’s a step-down effect across the lending landscape. One lender will slightly loosen guidelines, followed by others until a majority function similarly. If the new standards work, lenders loosen a bit more.

Check your FHA home buying eligibility here (Sep 16th, 2024)

FHA loan FAQs

What credit score do you need to buy a house?

There is no legal minimum credit score required to qualify for an FHA home mortgage. However, most FHA loans generally require your FICO score to be at least 500-580. The specific numbers required are often considered jointly with the size of the down payment. VA, USDA and conventional loans usually require a minimum credit score of 620-640.

What credit score do you need to buy a house for the first time?

There is a selection of mortgage loan programs intended for first-time homebuyers that allow for lower credit scores, including FHA loans available for borrowers with scores as low as 500 (though such loans will require a downpayment of 10%). FHA loans — with just a 3.5% downpayment — are available to borrowers with a credit score of 580 or higher.

Can I get a home with a 500 credit score?

Technically, yes, though it is difficult. Because there is no law stipulating a minimum credit score needed to buy a house, a lender can, generally speaking, offer loans at their discretion, no matter the borrower’s credit history. Still, it’s increasingly rare for lenders to approve home mortgages for borrowers with credit scores of 500. An FHA loan is likely to be the only type available in this scenario, and most FHA loans given to borrowers with a credit score of 500 require a 10% down payment.

Which FICO score do mortgage lenders use?

Most lenders determine a borrower’s creditworthiness based on their FICO score, a credit scoring model and risk analysis system developed by Fair, Isaac, and Company in 1956. FICO scores have different names at each of the three major United States credit report companies: Experian, Equifax, and TransUnion. These three are most commonly referred to when a mortgage lender is determining whether to provide you with a loan.

Check your FHA home buying eligibility here (Sep 16th, 2024)

How quickly can I raise my credit score?

Credit scores are the results of many variables (payment history, credit utilization ratio, length of credit history, credit mixture), some of which are calculated quickly, and others that can require weeks or months to accurately compute. Unfortunately, that means there is no accurate way to fully predict how long it will take to earn a better credit score. However, you can begin by focusing on accruing a history of consistent payments, which is the most influential factor in a credit score.

What credit score does a first-time home buyer need?

A first-time home buyer will need a credit score of at least 500 to buy a home with an FHA loan. However, the FHA will require a larger down payment of 10%. If you have a credit score of at least 580, you may qualify for an FHA loan with a 3.5% down payment requirement.

What disqualifies you as a first-time home buyer?

In order to qualify for first-time homebuyer programs, you cannot have any record of property ownership or co-ownership in the last three years. Beyond that, you’ll need to meet the minimum mortgage requirements set by your lender. That’s because the lender wants to make sure you can keep up with the mortgage payments. For example, if you have too much credit card debt that leads to a high debt-to-income ratio, a lender may not approve your mortgage application. 

What is the lowest credit score FHA will accept?

You may be able to obtain an FHA loan with a credit score as low as 500 but that low credit score comes with an increased down payment requirement. If you have a credit score of at least 580, you may be able to obtain a low with 3.5% down. 

Can I get a first-time home loan with a 650 credit score?

Many lenders are willing to work with first-time home buyers who have a credit score of at least 650. Although you can likely get a loan, you might not get the best interest rate with a 650 credit score. 

What credit score is needed to buy a house with 5% down?

You’ll need a credit score of at least 580 to use an FHA mortgage to obtain a home with 5% down. However, a credit score between 500 to 579 will require a down payment of 10% for an FHA loan.

Is 700 a good credit score to buy a house?

A credit score of 700 or higher is a good credit score. In most cases, that is more than sufficient to buy a house. However, your income and debt obligations must also meet the lender’s standards.

Check your FHA home buying eligibility here (Sep 16th, 2024)

What is the normal credit score to buy a house?

A conventional mortgage requires a credit score of at least 620 to buy a house. Since many buyers choose a conventional loan, a 620 credit score might be considered normal. 

However, you can have a credit score below 620 and still buy a house. With the help of an FHA loan, you can have a credit score as low as 500. The government-backed loan program opens the door for more borrowers to achieve their goal of homeownership.

Typically, a credit score below 500 is considered bad. With bad credit, it can be difficult to close on a loan.

What is the best credit score to purchase a house?

Generally, a credit score of 700 or higher offers a borrower the best financing options. With a higher credit score, you can access lower mortgage rates. Depending on the details of your mortgage, a lower interest rate could lead to thousands of dollars in savings. 

But it’s not necessary to wait until you have a great credit score. You can obtain a home loan through the FHA with a credit score as low as 500. If you dramatically improve your credit score in the future, refinancing is always an option.

Are there alternative types of mortgages for low-credit score borrowers?

The VA loan program, which is guaranteed by the U.S. Department of Veterans Affairs, offers zero down payment loans, competitive mortgage interest rates, and no private mortgage insurance (PMI) with relatively flexible credit requirements, which can be a good option for borrowers who are active-duty service members or veterans. For borrowers who live in rural areas, the USDA loan program, guaranteed by the U.S. Department of Agriculture, can be a good option, as long as your gross monthly income falls below the median for the area.

Check your FHA home buying eligibility here (Sep 16th, 2024)

The post Low Credit Score FHA Home Buyers Might Qualify in 2024 first appeared on My Mortgage Insider.

Buying again after a foreclosure, short sale, or deed-in-lieu of foreclosure can be done, with some hard work — and waiting.

Mortgage lenders don’t like to see a foreclosure on your credit report. But, there may be some hope if you’ve demonstrated a rehabilitated life situation and have had perfect credit since the foreclosure.

Check your home buying eligibility. Start here (Sep 16th, 2024)

How to buy a home after a foreclosure

The lender is looking for proof the circumstances that caused the foreclosure are well behind you and are not likely to be repeated. For example, if you had a medical emergency, incurred high hospital bills and missed work, but you are now recovered, then there’s a good chance you could be approved as a home buyer. But, if you had gambling problems and you’re still regularly visiting the casino, you won’t be approved.

In general, underwriters are looking to confirm:

• You had great credit before the foreclosure
• You have had great credit since the foreclosure
• The foreclosure was caused by a one-time event
• You are now recovered or have made fundamental changes in your life since the event that caused the foreclosure

What is an extenuating circumstance?

A few loan types allow shorter waiting periods for “extenuating circumstances.” In simple terms, it’s a situation that was beyond your control. A medical emergency or death of the wage earner are examples of potential extenuating circumstances. A divorce, a drop in equity, or inability to sell your home would not be approved extenuating circumstances — while, those are tough situations, they’re not considered “beyond your control.”

The loan underwriter will evaluate your situation and make a judgment call. Basically, he or she needs to build a case that your foreclosure was due to an event that had nothing to do with your lifestyle or choices, and despite your best efforts, you lost the home.

Conventional loan foreclosure waiting periods

There’s a seven-year waiting period after a foreclosure with a conventional conforming loan for both Fannie Mae or Freddie Mac-backed loans.

Both allow for a lesser waiting period with applicable, documented extenuating circumstances, though. In that case, there’s a minimum three-year waiting period and a 10% down payment required before the borrower is eligible for a new mortgage.

Keep in mind that if you’re putting less than 20% down, you’ll be required to get private mortgage insurance (PMI). Check with your lender early in the process on how the PMI company views foreclosures. In many cases, PMI companies impose stricter standards than Fannie Mae or Freddie Mac.

Check your home buying eligibility. Start here (Sep 16th, 2024)

FHA loan foreclosure waiting periods

There’s a three-year waiting period after foreclosure for FHA loans.

The FHA loan program does allow for documented extenuating circumstances, though it doesn’t specify an exact time frame. That said, you should expect it to be at least one year. The guidelines require that “the borrower has re-established good credit since the foreclosure” before they seek a new FHA mortgage.

For bankruptcy, the Federal Housing Administration requires no less than 12 months, and you can anticipate a similar minimum time frame for foreclosures.

Potential extenuating circumstances are a “serious illness or death of a wage earner” but the “inability to sell the property due to a job transfer or relocation” does not. Divorce is also not considered an extenuating circumstance unless the property was awarded to your spouse who defaulted on the loan after you no longer owned it.

VA loan foreclosure waiting periods

The waiting period after a foreclosure is two years for a VA loan with proof of re-established credit.

Similar to FHA loans, extenuating circumstances are allowed for reasons “beyond the control” of the borrower if properly documented. The VA treats foreclosures similar to bankruptcies as well — at least one year of good credit is required for a VA loan eligibility.

If your foreclosed mortgage was a VA loan, you may not have any additional VA entitlement left. Entitlement will not be restored if your original VA loan was not repaid in full.

USDA loan foreclosure waiting periods

For USDA loans, the waiting period after a foreclosure is three years.

It does allow for extenuating circumstances like the other loan types, what it refers to as a “temporary situation.” The circumstances need to be “temporary in nature, beyond the applicant’s control, and the circumstances have been removed and resolved for the 12 months prior to application.”

You may also have a shorter waiting period if the new loan will significantly reduce your housing expenses, which will help improve your ability to make your mortgage payments. The USDA considers a qualifying reduction to be 50 percent or more.

Check your USDA home buying eligibility here (Sep 16th, 2024)

Waiting periods after foreclosure summary table

What is CAIVRS for government-backed loans?

The Credit Alert Verification Reporting System (CAIVRS) is the federal government’s database to track individuals who have defaulted on federal financial obligations — like defaulting on a student loan or foreclosing on a home with a government-backed loan.

You will not be able to access the CAIVRS list yourself, but your lender can and will check before approving your loan. If you’re applying for an FHA, VA, or USDA loan and you’re on the CAIVRS list, then you will not be approved for the loan.

Delinquencies like student loan debt will stay on the CAIVRS list until it’s resolved in full, but if you’ve foreclosed on a government-backed loan, then you’ll have to wait three years before being removed from the list.

Six government agencies report to CAIVRS — the Department of Housing and Urban Development, Department of Veterans Affairs, Department of Education, Department of Agriculture, Small Business Administration, and the Department of Justice. If you defaulted on debts to any of these departments, then more than likely you’ll be on the CAIVRS list.

Waiting periods after short sales & deed-in-lieu foreclosures

For some loan types, the waiting period after short sales and deed-in-lieu of foreclosures are different than a traditional foreclosure. Most offer shorter waiting periods with approved, documented extenuating circumstances.

*The waiting periods provided are for deed-in-lieu foreclosures. The VA does not offer specific waiting periods for short sales.

**Short sales on a principal residence to take advantage of declining market conditions are not eligible for a USDA mortgage loan.

A final note to buyers

While the above waiting periods and restrictions are detailed in the specific loan guides, each lender can make additional rules and may require longer waiting periods. The good news is that it is possible to buy again after a foreclosure, but it will take some time.

Check your home buying eligibility. Start here (Sep 16th, 2024)

The post How Long After a Foreclosure Can I Buy a Home? first appeared on My Mortgage Insider.

-Anonymous

A: If you are delinquent on the mortgage you have now, there are not a lot of options to buy a different home. Lenders won’t take a risk on someone who is already late on their payments elsewhere. They see that as a really good indication that mortgage delinquency will happen again.

Creditors view your past as a guide to how you may behave in the future. Mortgage delinquency says that you don’t make enough money, are irresponsible, or otherwise got in a financial situation that’s now not manageable. Whether or not these are actually true about you is irrelevent to a lender. To them, the fact that you are now late on your mortgage sounds warning alarms that keep you from being approved for a new loan.

Regarding selling your current home, I’m guessing you’re underwater. This would make the home hard to sell. You might want to would check out the government site, MakingHomeAffordable.gov, for options to reduce your payment and keep your home.

The best plan is to get your mortgage delinquency taken care of by paying funds that are in arrears. Then try to stick it out where you are until you can sell the home conventionally. Sometimes it just takes a lot of time and patience to overcome these obstacles.

The post I’m Delinquent on my Mortgage. Can I Buy another Home? first appeared on My Mortgage Insider.

But now you’ve pulled yourself back from the brink and you’re back on your feet. You’re thinking of buying a home again. Can you buy again after bankruptcy?

The answer is often yes.

Each of the major loan types – VA loans, USDA loans, conventional, and FHA – all have clear guidelines regarding when you can buy a house again after bankruptcy.

Check your home buying eligibility. Start here (Sep 16th, 2024)

Buy again after bankruptcy | Quick check chart

Look at FHA first to buy again after bankruptcy

The FHA loan program normally states at least two years need to have passed after the bankruptcy discharge to qualify for a new loan.

But recently introduced was FHA’s “Back to Work” program, which allows borrowers to buy again just one year after bankruptcy.

This program aims to help borrowers whose bankruptcy was due to the economic downturn of 2008. To qualify for this program, you must have lost 20% of your income for 6 months prior to filing for bankruptcy. In addition, you must show perfect rent history and re-established credit for the 12 months prior to your loan application.

In addition, you must be working with adequate income to qualify for the new FHA loan. For those who meet the guidelines of this program, it’s a great way to get back into a house after bankruptcy.

Check your FHA eligibility. Start here (Sep 16th, 2024)

Conventional loans after bankruptcy

Conventional loans require the longest waiting period of any loan type. But, for those with a good re-established credit score and a good down payment, it’s worth looking into a conventional loan, since it’s the least expensive of any loan type.

If you filed a Chapter 7 or Chapter 11 bankruptcy, you must wait four years from the discharge or dismissal date of the bankruptcy. But, a two-year waiting period may be allowed if the bankruptcy was due to circumstances beyond your control, such as a medical emergency.

Related: Buying Again after Foreclosure

For Chapter 13 bankruptcies, the waiting period is two years from the discharge date or four years from the dismissal date. But, a two-year waiting period after the dismissal date may be permitted if the causes of your bankruptcy were beyond your control.

Check your home buying eligibility. Start here (Sep 16th, 2024)

VA & USDA loans

You should look into a Veterans Administration (VA) loan if you have current or former military experience. For VA loans, the lender will analyze the circumstances around the bankruptcy to determine whether you are a good candidate to buy again.

The waiting period is typically two years from the discharge of the bankruptcy. In fact, the VA handbook states that a bankruptcy that occurred more than two years ago may be disregarded from the credit analysis.

For bankruptcies that occurred between one and two years ago, chances are slim that you will be approved. But it is possible, given you have obtained credit accounts and have perfect history on them, and the bankruptcy was caused by circumstances out of your control, such as a medical event, unemployment, or the death of a spouse.

United States Department of Agriculture (USDA) loans allow those who are looking to buy a home in more rural areas to do so with zero down payment. USDA loans require a three-year waiting period from the discharge of the bankruptcy. There are no exceptions or reduced waiting periods for this program.

As with all the loan programs, the USDA loan requires that you show a re-established credit history and have had near-perfect history since the bankruptcy.

You can buy again after bankruptcy

Though not always an easy road, just about everyone can buy again after bankruptcy. Lenders recognize that things happen in life, but that people can rebound, learn lessons, and be great borrowers again.

Check your home buying eligibility. Start here (Sep 16th, 2024)

The post Buying A Home After Bankruptcy first appeared on My Mortgage Insider.

Life. It can get in the way sometimes of having a great credit score, at least temporarily. But if you are hoping to buy a house and get a loan, you might still be in luck even if you feel your credit score seems pretty low.

Check your home buying eligibility. Start here (Sep 16th, 2024)

What credit score do you need to get a mortgage?

How low are we talking about?

“620 is very low, but you can get a loan with it, and it’s the absolute minimum for a Fannie Mae loan,” says Chris Thomas,  loan originator at America’s Mortgage LLC in Wheat Ridge, Colo. “FHA loans will go down to 580 sometimes. But the only things that count against you on your credit report are whatever is listed on your report the last two years, even though they put seven to 10 years of stuff on the reports.”

But even if Fannie Mae accepts 620, most lenders will limit their conventional loans to 640 for extra safety from people defaulting on a loan.

“Research shows that with a 640, you have a much less chance of going into foreclosure. That’s the risk threshold,” he says.

Thomas says many people just don’t understand what their credit score is all about because no one really explained it to them. People just always hear those commercials on television about getting their free credit score, he says.

“First of all, there is no danger of someone with a 490 or less getting a mortgage,” he says. “You just have to pay your bills, folks. And some people just don’t get that for some reason.”

He also says many people don’t understand that the higher their score, the cheaper their interest rates will be.

“Generally speaking, if they have above 760, you will get the cheapest mortgage interest rates,” he says.

Related: The $13,075 Sweater and Other Credit Card Mistakes

However, about 30 percent of Americans are unlikely to get a mortgage because they have a credit score less than 620, according to a recent Zillow Real Estate Research study.

What does a credit score mean

These mysterious credit scores aren’t really so mysterious once you know where they come from and how you can actually get them higher, Thomas says. Credit reports include such information as where you live, how you pay your bills, whether you’ve been sued or if you have had a foreclosure or bankruptcy. That information is then sold to creditors, employers and insurers that use the data to look into your world to see if they can trust you to give you a loan, rent you an apartment or hire you.

The credit score summarizes your credit report in a number form, and it can range from 300 to 850, according to the Fair Isaac Corporation or FICO. The most widely used credit scores by lenders are FICO scores, says Thomas. VantageScore is also available, which just has different criteria on how it summarizes information from the three major credit bureaus.

“Most lenders don’t accept those scores (Vantage),” he says. “That’s a problem for some people, because they are using the VantageScore that they downloaded from their computers, and usually that one is higher than the FICO score.”

But Thomas says that a credit score isn’t the only thing taken into consideration by a lender to give a mortgage. You also have to have steady income and have some assets. However, Thomas says assets aren’t as big a thing as it used to be, and you don’t have to have so much in reserves as before. Lenders just want to know you have the income and a steady job to pay the mortgage monthly.

By getting as much supporting documentation as possible surrounding your credit problems can help a lender see the whole picture of your financial life.  Sharing all details is important. It could have a big effect on whether the lender will approve your loan or not.

Tips to improve your credit score

And if your lender tells you that your credit score is too low, then there are ways to improve it quickly.

“I’ve seen people raise theirs 50 to 60 points in a month,” Thomas says. “It’s all about discipline. Lenders want to know you are responsible.”

If you went bankrupt three years ago, you could have a 750 credit score within a year if you have nothing bad on your credit report, Thomas says.

“You have to learn your lesson. Lenders expect you to learn your lesson. The way you prove that is to pay everything on time, and have a clean record the past 12 months,” he says. “If you are late on a Sears charge card, you aren’t getting a loan because you haven’t learned your lesson.”

Thomas uses credit analyzer software to help his clients find out exactly what they can do and how many points their score will rise with those actions. Every client’s situation is different because everyone’s credit report is different. But some of the things the software has requested of his clients is to actually open up a secured credit card account if the client doesn’t have many accounts. It also has told his clients to pay down a certain amount on a credit card.

“The worst thing you can do is pay down an old collection account. If it’s over 2 years old, it’s not hurting you,” he says.

His advice is simple — “You have to use credit to have a good score.”

Check your home buying eligibility. Start here (Sep 16th, 2024)

The post Can You Get a Mortgage with a Bad Credit Score? first appeared on My Mortgage Insider.

You thought you had amazing credit. But you never really checked ahead of time, and now some marks against you are stopping you from your plans of owning a house. You need to either fix your credit by yourself or turn to a credit repair firm to help clear up the mistakes or the problems quickly before the home is sold to someone else.

If you plan on doing this by yourself, which is totally legal and acceptable, be ready to be very patient and have lots of time, says Jason Kaplan, attorney in New Jersey and board member of National Association of Credit Service Organizations (NASCO).

“If you want to attempt it, go for it. But most people don’t even know how to read a credit report,” he says. “The laws are set up that if you have the knowledge, you can do everything a credit repair agency can do. But you could also pull your own tooth, but most people choose not to and go to a dentist.”

Check your home buying eligibility. Start here (Sep 16th, 2024)

Get help with your credit report

A credit report is like someone’s fingerprint. There are so many variables, Kaplan says. And many times – those variables are messed up because humans are in charge of putting that information into the system.

“I don’t fault the credit companies. They are dealing with billions of pieces of information. There are so many places to get the wrong information. I don’t think they are doing it on purpose, but most people don’t check on it until they need a loan,” he says.

A Federal Trade Commission (FTC) study last year found that one in five consumers had an error on at least one of their three credit reports.  Those errors hurt them with getting good interest rates or even getting a loan at all, Kaplan says.

So, people can choose to turn to a credit repair agency to muddle through the paperwork and bureaucracy to hopefully clear up the mistakes. There are no guarantees, though, that an agency can fix everything or help raise your credit score quickly or even at all.

The agencies can research your situation and comb through your report to understand what all the problems are. They can help correct errors on your report.  They know how to write letters of dispute to hopefully get errors removed from your report.

They also can negotiate with your lenders on your behalf.

Choosing a credit repair agency

If you pick a credit repair agency, try to find one with a good reputation and has been around for a while. Consumers are supposed to be protected from bad credit repair firms through the federal law called CROA (Credit Repair Organizations Act). It prohibits untrue or misleading representations, and they cannot charge for services until after services are performed, Kaplan says. Many states also have their own CROA with a few other requirements including that agencies need to be registered and bonded.

Once you find a reputable credit repair company, don’t be fooled that it will be a quick process. Don’t let them tell you that they can clear up your credit in 30 days or less. That kind of a statement is illegal for them to say, Kaplan says. No one can promise you that it will be done quickly.

Fixing your credit can take time – months and maybe even a year in some situations, he says.

“If there are a lot of problems on a credit report that need disputed, then that means many letters and phone calls need to be made. The credit companies have 30 days to respond to you,” he says.

Be sure to maintain your improved credit

The problem that Kaplan runs across in the business is that even after a credit repair firm is hired and things are cleared up on the client’s credit report, the client goes back to their bad habits.

“It’s the nature of the business. Some people are just going to be irresponsible and not change their habits. If they don’t pay their bills on time or pay down their credit cards, it’s going to put them in a negative light again on their credit report,” he says.

The cost of getting help from a credit repair agency can vary along with how long the actual process takes.

“I usually work with my clients between 5-7 months, and charge $99 a month with $150 consultation fee. It’s about $800 altogether, and that seems to be the average price,” he says. “Credit score model doesn’t prejudice against anyone. I have helped grandmothers to college kids fix their credit report. But those who are successful are those who have an actual goal in mind – like buying a house.”

Check your home buying eligibility. Start here (Sep 16th, 2024)

The post Credit Repair Companies: Can They Help? You Bet They Can. first appeared on My Mortgage Insider.

Check your home buying eligibility. Start here (Sep 16th, 2024)

Ask why you were denied

First, don’t panic. Mortgage loans are much more difficult to qualify for when compared to just a few years ago, so you’re not alone. It’s perfectly natural to feel disappointed, maybe a bit embarrassed. But in reality, getting declined for a mortgage is also a road map for the future. But first, you need to find out why, exactly, your loan application was turned down.

Speak with your loan officer and ask the basic “why?” question. The loan officer will tell you what went wrong but typically mortgage turn-downs are listed in three basic categories:

• Insufficient Income
• Credit
• Assets

Yet your initial conversation with the loan officer doesn’t stop there. Federal statutes require the lender provide you with a formal declination notice, referred to the lending industry as an “Adverse Action” notice.

This letter spells out the reason(s) your loan was declined and provides you with a list of the problems found with the application. Your phone call with the loan officer provided you with the initial reasons, but you’ll get a formal record in the mail.

Insufficient income

This means your gross monthly income was not enough to cover your current monthly obligations in addition to a future mortgage payment. Your loan officer should have reviewed this with you before you applied for a mortgage. If the loan officer said your income was fine when later you were told otherwise, then something went awry.

At a loan application meeting or when you apply online, a section of the application is reserved to list all your monthly income. That includes income from your job, interest and dividends, bonuses and income from your business. If the lender initially used all the income listed yet determined later that the documentation provided didn’t back up the income amounts, the income can’t be used.

The most common problem with income occurs when tax returns are reviewed and self-employment income shows a business loss. If you have a side business and it shows a loss, the amount will be deducted from your gross monthly income.

If your loan was declined because of insufficient income, your choices are either to borrow less money by saving up for more down payment or buy a smaller home.

Low credit score

If your declination letter states that your application was denied due to information contained in your credit report, it’s likely you’re aware of the issue. Or if the lender needs at least a 620 credit score to qualify and your score is only 600.

Again, your loan officer will tell you specifically what is hurting your credit report. For example, if you have an outstanding collection account you should pay it then wait for a few months and reapply, all the while keeping your payment patterns perfect with your creditors during that time.

If there’s an obvious error on your credit report, document the error and provide the information to your loan officer. Lenders have working relationships with credit reporting agencies and can help get mistakes corrected quickly. If there is no mistake and the derogatory information is correct, only time will heal your credit, typically within 12-18 months.

Not enough assets

When turned down for insufficient assets to close, it’s simply a long way of saying you haven’t saved up enough money to cover your down payment and closing costs. A lender makes this determination after reviewing your most recent bank statements.

Lenders like to see consistent, continued savings in your checking and savings accounts and any irregular or undocumented deposits may not be used.

Having enough assets is simple to correct by merely saving up more money, having a seller or the lender provide you a credit for your closing costs or any combination of the two.

Denial due to lender error

Lastly, a loan can be declined because the lender made a mistake. This is the best kind of turn-down because it’s something you can get fixed and get your approval back. Lenders make mistakes too and sometimes it takes an explanation of your situation before a lender makes a final decision.

For example, say that the lender declined your loan because you listed part-time income that couldn’t be verified. The loan officer saw the income listed on your application but didn’t document it. By providing your income tax returns showing two years of consistent part-time work along with documentation from the employer, you can use that income, helping you to qualify.

The best way to avoid getting a declination notice is to ask as many questions as you can think of before you apply. If you’re not exactly sure if you’ll qualify, speak with an experienced loan officer beforehand. If you can’t qualify today, get your road map to approval before applying for a mortgage, avoiding a declination letter altogether.

Check your home buying eligibility. Start here (Sep 16th, 2024)

The post Mortgage Application Denied? What To Do Next first appeared on My Mortgage Insider.

It’s a rough time when someone goes through foreclosure. The toll on finances and emotions can topple even the strongest of people.

But there is hope for those who lost their home to foreclosure. In fact, recent research shows that there is light at the end of the tunnel, and people who suffered foreclosure are buying homes again. They are called boomerang buyers.

Check your home buying eligibility. Start here (Sep 16th, 2024)

Buying again after foreclosure

Sean Fergus, manager of research at the John Burns Real Estate Consulting in Irvine, California, completed the analysis on boomerang buyers earlier this year. He found that of the 5.3 million households who lost their home to a foreclosure or short sale from 2007 to 2013, about 889,000 have already repurchased a home, and about 2.8 million will become homeowners again by 2021. However, 1.8 million will be stuck renting for at least the next seven years.

He expects that the recently reduced FHA loan limits will impair the higher price points in a handful of markets and will stop many of those who had gone through foreclosure to not be able to get a loan for a home for a while. For instance, the 2013 FHA loan limit for San Diego has been dropped to $546,250, and Orange County, California, and Washington, D.C., dropped from $729,750 to $625,000.

FHA loans are the most forgiving for those with foreclosures in their credit history. To qualify, you must wait at least three years after the foreclosure. Sometimes that waiting period is shortened to just one year, depending on whether your foreclosure was caused by an event out of your control such as divorce, job loss or serious illness or death in the family. A conventional loan through Fannie Mae or Freddie Mac is only accessible after a foreclosure after seven years.

But even Freddie Mac’s website gives hope to those after a foreclosure by issuing the statement — “If you’d like to own a home again, start your preparation today. Stay positive and stay focused, and don’t give up.” It’s all about getting that credit score back up, and saving a significant down payment to demonstrate your investment and responsibility in buying another house.

Liz Recchia, broker and owner of We Sell Real Estate in Phoenix, has helped many distressed homeowners the past 18 years to buy homes again after a foreclosure, short sale or bankruptcy.

Not only does she try to help them find the right home and the right loan, but she also helps them during the years before they can buy a new home with simple budget forms and other advice on her website.

“Tools your great-grandparents used work today, and property ownership is at the core of what we do,” she says.

Here are two cases in which Recchia’s clients were able to come out of foreclosure and buy homes again:

The Gomez family bought again after foreclosure

They were forced into bankruptcy in 2009, and their house was foreclosed on. By early 2012, they had paid off the last of their debt, saved $20,000 and prepaid their utility expenses several months in advance.

“When I met them, they were thinking of buying a house again because their family of five was bursting at the seams in their small apartment. They told me they never wanted to experience the loss of a house again,” she says.

They also wanted to pay off the new house in 15 years and did not want to spend more than $140,000, even though they were preapproved for a $208,000 loan.

Recchia found a new home builder in the area, and they were able to purchase a new 1,800-square-foot home. They stuck to their budget by accepting the builder’s basic flooring and appliances and developed a plan to save money and pay for flooring and appliance upgrades in cash. This year, Mrs. Gomez became very ill and was unable to work for months. But they had set up their payments so if one of them loses their job, their spouse’s income could pay for the house and all family expenses.

“When I saw them just a few months ago, Mrs. Gomez had gone back to work, they had paid all of her medical expenses in cash and never missed a house payment. They are still on track to pay off their house early,” she says.

Check your home buying eligibility. Start here (Sep 16th, 2024)

Bankruptcy and foreclosure in 2010, then an all-cash lifestyle

“I had met a couple at one of my open houses in January 2011. They had worked hard to pay off debt, accumulate savings and re-order their lives,” Recchia says. “They both worked two jobs and took any overtime available. They had decided to live an all-cash life with the exception of a small home loan.”

With a little more time, they were able to save enough money to purchase a house in west Maricopa County. They did not want a traditional bank lender. Because they now lived a life based on cash, their credit scores were not good enough to qualify for a federally backed loan. Most of all, they wanted a 7-10 year loan. The goal was to own their house sooner rather than later.

In 2012, they submitted an alternative credit report to a private money lender along with paystubs and savings’ account statements. The private lender manually underwrote the couple and offered them a 7-year loan at 8 percent with a 30 percent down payment.

“They were overjoyed. Within two months, they were closing on their new house. I received an update from them earlier this year. They are on track to pay off the house in 2017 – two years earlier than originally planned,” she says. “So, in 2017, they will be debt free and own their house, not bad considering where they were in 2010.”

Can you buy a home after foreclosure?

Many people assume they will never qualify to buy a home again. Yet those who fell on hard times but have kept a clean credit record since often have higher credit scores than they thought.

Check your home buying eligibility. Start here (Sep 16th, 2024)

The post Heartwarming Stories of Families That Bought Again After Foreclosure first appeared on My Mortgage Insider.

The mortgage experts say not to despair. With more stringent rules and standards that have come after the mortgage fiasco a few years ago, banks are turning down more loan requests than before.

Check your home buying eligibility. Start here (Sep 16th, 2024)

Determine why your mortgage application was denied

If you have been turned down for a mortgage, it’s time now to revisit why the lender rejected your request for a home loan, keep your emotions out of the picture and then fix the things that stopped the mortgage from going forward.

“Understanding the factors that influence the credit decisions made on your behalf will empower you to better control your financial well-being and take the necessary steps to address any of the factors,” says Demitra Wilson, senior director of public relations for Equifax Inc., one of three largest consumer credit reporting agencies along with Experian and TransUnion.

The best move to take after a loan rejection is to get the information you need to know your credit situation and start talking with your lender and your creditors.

The things that could go wrong on your credit history are as simple as someone inputting the wrong information or someone with the same first and last name having their credit histories combined with yours. It happens more than people want to admit.

“Your Equifax credit file includes identifying information, trade line/account information inquiry information, public record and collection information. Information in these categories could potentially be inaccurate,” Wilson says. “If you believe that any item of information contained in your credit file is incomplete or inaccurate, you can notify us directly. We will investigate the item free of charge.”

She adds that you can notify any of the three credit reporting agencies directly to dispute inaccuracies on your credit file. All of them also offer information on their websites about the dispute process.

Victor Wikstrom has been a mortgage underwriter in Tampa, Fla, for more than two decades and most recently was assistant vice president with Bank of America. He said that many loan companies just send out a generic letter to people when their application is turned down with the reasons it was rejected. Some companies actually make the phone call to their customers to tell them the reason or reasons why the application was denied and to guide them on how to fix it.

“I’ve been looking at credit reports for 25 years now. You could have a perfect credit score, but the credit report will still give me four reasons to turn down your loan,” he says. “You just really need to talk with a person about why you were declined. It could be something really small that can be fixed. Or it could be something that was put on your credit report that wasn’t yours.”

For instance, someone with a common name such as John Smith might find all kinds of things wrong on his credit report.

“All it takes is somebody inputting something incorrectly. It is possible that your credit file has been merged with someone else’s. If you and your dad have the same name but different middle initials, his stuff could be on your credit report,” he says.

But Wikstrom adds that most people never look at their credit report before applying for a mortgage or car loan. They think everything will be fine, but it isn’t always fine.

Confirm your home value

“Being denied for a loan can be very educational. People learn from it. Sometimes, they learn that the value of their home just isn’t there, and the lender can’t give them a loan to refinance,” he said.

He saw this many times during the big frenzy to refinance. People thought their homes were worth more than they really were, and the banks just couldn’t help them until the values increased. Low appraisals have hurt many purchases and refinances through the years.

Sometimes when lenders go through your bank statements, they might find bills that weren’t disclosed. For instance, you might have borrowed some money from a relative or friend, and now you have to pay $200 a month for the next couple of years. If they see that payment consistently in your bank statements, and you never mentioned it during the application process, that sends up a red flag and can get your application thrown out.

Wikstrom says that when applications are entered in the branch level of a lending company, hopefully, they will catch problems upfront. That’s where you get the automatic decline letter. This is the level where they see that the credit score is fine, and the income-to-debt ratios are fine.

If they say right away that your debt-to-income ratio is above their limit, you can try to find another lender that allows higher ratios, he says.

But there are still other things that come along in the process that can pop up, he says. Twenty percent of people get declined right away for a loan for one reason or another.

“You need to get a copy of your credit report. See what’s wrong, and call and talk to someone at the reporting bureau. Go over everything. Some companies now even have a live chat online to help customers,” he says.

Check your home buying eligibility. Start here (Sep 16th, 2024)

The post Mortgage Application Denied? What To Do Next first appeared on My Mortgage Insider.

What’s worse, the Federal Trade Commission (FTC) estimates that 25 percent of credit reports contain errors that affect the consumer’s score.

Check your home buying eligibility. Start here (Sep 16th, 2024)

Here are four steps you need to take to make sure your credit is at its best, hopefully before you actually need it.

Step 1. Pull your own credit report.

Everyone gets one free annual credit report through the website AnnualCreditReport.com, which is provided by the three major credit bureaus. A recent law mandated the bureaus to provide a credit report to consumers, free of charge.

The site does not show a credit score for free, but there is an option to pay for a report with a score.

As an alternative to AnnualCreditReport.com, you can pull your credit report and score through this credit resource. You’ll receive everything you need to review your credit history.

No matter which service you choose, your credit report will show you late payments and other derogatory items. The report also shows all the accounts showing up under your name. Often, these accounts are reported erroneously – they are someone else’s.

If the account shows late payments or a default, your score goes down, not the score of the real owner.

Make sure there are no errors on your report.

Click here to pull your credit report and score using this credit service (which by the way is not affiliated with AnnualCreditReport.com.)

Step 2. Analyze the report.

Look through each and every account. Make sure there are no 30, 60, or 90 day late payments showing. All these hurt your score.

Make sure you recognize each account. If there’s an unfamiliar account showing up, it could be someone else’s.

Step 3. Gather documentation.

If erroneous items show up, you should send a formal letter to the creditor along with supporting documentation.

The documentation must be very specific and prove beyond the shadow of a doubt that you paid the bill on time, was paid and closed, or is not your account at all.

The creditor has 30 days to respond to your request. If they don’t respond in this timeframe, they must remove the derogatory item from the records.

If the creditor accepts the documentation or fails to respond, they will report the error to the three credit bureaus. The bureaus will then remove the item from your report.

If the credit does not accept, they will not notify the bureaus and the item won’t be removed. At that point, ask the creditor what documentation they need. Keep trying to get documentation based on the creditor’s requirements.

Step 4. Make all payments on time.

Now that you have examined and fixed errors, it’s your job to keep your credit healthy. Even if you’ve made credit mistakes in the past, you can recover.

Dings on a credit report affect your score less as time goes by. As you build a positive credit history starting today, your score will improve little by little. If you pay everything on time for 12-24 months, your credit score can improve by 100 points or more, even after a bankruptcy, short sale, charge off, or repeated late payments.

Step 5. For serious cases, seek out professional help.

Credit solutions professionals have all the right phone numbers to all the creditors. They know how the creditors work.

Professional credit solutions agencies can contact and negotiate with the creditor to get erroneous items cleared quickly, or work out payment terms for late accounts.

We live in a do-it-yourself society, but when credit issues are very deep and complicated, it’s often time to call in the pros. For more information on how to get professional help, see our video with credit solutions expert Blair Warner.

Credit is a complicated, controversial, and frustrating issue. But don’t be afraid of it. The only way to achieve many of your goals in life like buying a home or landing that great job is to have a good credit score and profile.

Check your home buying eligibility. Start here (Sep 16th, 2024)

The post 5 Steps to a Good Credit Score Even if You Have Bad Credit Now first appeared on My Mortgage Insider.