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Home-buyers Are Embracing Looser Lending Requirements

Home-buyers Are Embracing Looser Lending Requirements

July 15, 2019

Nothing is more frustrating than not being approved for a home loan, whether one is a first-time home buyer or a repeat buyer.  A number of hurdles can rain on one's home-buying parade, and those hurdles can include low credit scores, having little or no down payment, unsubstantiated income, student-loan debt – the list goes on.  

With all that being said, there is some great news for those with home-purchase fever.  Certain restrictions that used to turn potential borrowers away, have been revamped.  Bottom line:  many more people qualify for home loans, now, who previously did not!

Here are some insights regarding the mortgage arena that anyone wishing to purchase a home would find encouraging:

Lower Down-Payment Loans/Down-Payment Assistance and More

Securing mortgage loans with lower down-payments is now a reality for more and more Americans!  Saving a sizable amount of money for a down payment can be a huge challenge, but 0%, 3%, or 3.5% minimum down payments are readily available.  FHA loans offer a down payment requirement of only 3.5% of the purchase price of a home if one's credit score is at least 580.  Some Conventional loans offer 3% down, making home-buying more attainable.  

Additionally, down-payment assistance programs make the down payment component even easier. There are between 2,000 to 2,500 down-payment assistance programs, nationwide – this, according to The Mortgage Reports.  Additionally, welcome modifications that allow for an increased number of borrowers to secure home loans include a slight increase in debt-to-income ratios from 45% to 50%, with FHA loans allowing debt-to-income ratios as high as 55%.   Other changes include an increase in loan-to-value, the acceptance of slightly-lower credit scores, and a relaxing of past rules concerning how student loan payments are calculated. 

Lower Credit Scores Accepted

Ellie Mae is a leading cloud-based platform provider for the mortgage finance industry, and according to their Borrower Insights Survey, 29% of renters believe that in order to secure a home loan a borrower must have a credit score that ranks from 700 to 749 – the good news is, that belief is inaccurate.  Lender guidelines have loosened, and a minimum score of only 620 will qualify many people for a variety of loan programs as long as they possess significant resources or other factors that would open the doors for loan approval.

A December 2017 Ellie Mae Originations Insight Report revealed that 82% of closed conventional loans had credit scores of 700 or higher,  13.6% had credit scores between 650 and 699, and 4.7% had scores under 650.  Along with that, the FHA stated that borrowers of FHA loans with credit scores of 700 or above made up 34% of loans; those with scores between 650 and 700 made up 35% of FHA loans, and those with credit scores below 650 made up 31%.  Also, Fannie Mae's Home Ready mortgage program allows a 3% down payment for repeat buyers as well as first-time buyers.

Student-Loan Modifications

Student loan debt – this proverbial thorn-in-the-side used to be a challenging hurdle for many wishing to purchase a home, but restrictions have eased.  Carolyn Sullivan, a senior mortgage consultant with American Financing in Aurora, Colorado, presents one of the revisions: “If a parent or employer is making the student loan payments, we can exclude that debt from the loan application as long as we see 12 months of documented payments.” 

Maximize Your Chances of Being Approved

To maximize your chances of being offered the lowest possible mortgage rate with the best loan terms, be sure to:

***  Check for any errors on your credit report before you apply for a loan.  

***  Gather the facts on low down-payment requirements before speaking with a lender.

***  Pay down your debt to at least 30% of your credit limit.

***  Have down payment money immediately, available, if needed.

***  Research down-payment-assistance programs.

Opportunities for home ownership have been, dramatically, optimized due to modifications in loan guidelines.  As would be expected, mortgage applications are on the rise, due to low rates.  It's hard to say how long these buyer-friendly conditions will last, but for the time being, now could be the best time to purchase the home you've always wanted!   

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