Getting a Loan with Low Credit

I recently had a chance to talk with Jared Helton of Infinity Lending Solutions, about lower credit scores and how they affect getting a loan for a house.

Q. Are there minimum credit scores to get a loan for a house?
A. For most products, it is stated that there are no minimums on government backed loans. However, most lenders have instituted minimums.

Q. What are the practical minimum credit score limits for the different loan types.
A. FHA: 580 (a few lenders go to 520)
USDA: 600 (a few go to 580)
VA: 580 (a few go to 520)
Conventional: 620

Q. How do lower FICO scores affect loan pricing?
A. For government backed loans, like FHA, USDA, & VA lower credit scores have less affect on pricing with maybe as little as 0.25% for a lower fico between 580 – 619. On conventional loans, it’s a huge change on pricing. Some rates jump over 1% for lower credit scoring around 620.

Q. Is there a minimum score, below which getting a loan is next to impossible?
A. Pretty much below 520 is private money lenders only.

Q. What are some steps to improve your credit scores?
A. Schedule a review of your credit with someone that knows what they are  doing. I’ve written about it on my web-site too.

Q. Does talking to lenders and doing multiple applications hurt your credit score?
A. That is a huge myth that multiple inquires hurt your score.

All multiple “like” inquiries by mortgage companies made in any isolated 45-day period of time for TransUnion and Equifax (14 day period for Experian) are treated as one single inquiry for the calculation of the score.

Any mortgage inquiry made during the 30 days prior to the current broker/lender’s mortgage inquiry will be buffered out of any impact in the consumer’s score calculation.

Jared Helton, Partner, Infinity Lending Solutions

Jared Helton, Partner, Infinity Lending Solutions

Oregon’s Population Rising

Population change in a state is one factor that influences housing prices. After all, house prices are a fundamental supply and demand situation. Inward migration tends to create more demand and push up prices.

Oregon is projected to increase in population for the fiscal year 2008 by 1.8% to about 3.8 Mm people. Contrast this to California, which will lose 144,000 people. As most Oregonians know, we’re one likely stop for our southern neighbors. Strong growth is projected for the Portland area. Lane County will grow by about 2,700 people to 346,000.

A good place to be from?

California: A good place to be from?

Hi Credit for Best Interest Rates

Credit scores are increasingly important to getting loans, and loans of course are usually necessary to purchase a house. Banks have grown more and more averse to bad loans, so they’re wanting better credit scores. And the higher your score, the lower your interest rates.

FICO scores of 760, up from 720, are now necessary to get the cheapest rates on conventional 30 year fixed mortgages, according to a 3 January 09 WSJ article. The article also said that the new FICO scoring model will be even more sensitive to on time payments. So, pay your bill on time, if you can.

Sky-High Credit is Required for Best Interest Rates.  Photo from Springfield Oregon.

Sky-High Credit is Required for Best Interest Rates. Photo from Springfield Oregon.

Commercial Loans in Lane County

I recently had the chance to speak with Pat Costello at Selco Credit Union about commercial lending in Oregon. Pat, having worked at some of the biggest banks around before coming to Eugene, is not your usual small town banker. An MBA from the University of Chicago, rental ownership, and a Board spot at the Eugene ROA give him keen insight into commercial property in Lane County.

The credit crisis has many lenders in a stingy mood; they’re holding on to their capital (not readily making loans) to cover bad or questionable loans already on their books. This isn’t the case with Selco–they’re still making loans.

Two of the ratios that are critical to your loan are DCR and LTV. DCR, debt coverage ratio, is probably the most important, and the bankers like to see a minimum of 1.20 to 1.25 these days. DCR is a measure of income to debt servicing. In simple terms, the project will need to clear a dollar and twenty five cents for every dollar you’ll apply to paying down the loan.

DCR tends to be more restrictive than loan to value. In order to meet the 1.20 minimum DCR, your LTV, loan to value, ratio will most likely not exceed 70%, at least for properties around here.

Construction money is still available at Selco for good projects. Loans up to 75% LTV for interim construction funds are possible, with up 80% LTV possible for permanent financing. In today’s economic climate, I think it’s fair to say, that Selco has grown more selective on loans.

Interest rates follow the Seattle Home Loan Bank’s 5 year commercial bullet index. Loan structure is frequently fixed for 5 years before adjusting, with a 10 year call, and 25 year amortization. The banks look at the 3 C’s when scrutinizing a potential loan:

C Collateral
C Cash Flow
C Credit.

While the ratios and standards have grown more restrictive, there are local programs available to assist borrowers get more money through the Small Business Association. Pat is familiar with those too. If you’d like to reach Pat, give him a call at 744-7519.

Pat Costello at Selco

Pat Costello at Selco

Buyer’s Market in Eugene

Every month, I compile our local real estate market statistics. I start with the data supplied by our local multiple listing service, used by most area realtors, RMLS. Last month’s summarize 2008, and are in the table below.

Supply of houses, based on the rate of sales, didn’t dip below 8 months for the entire year. Levels above 6 months are said to be a buyer’s market. So, last year was good for buyers and not so good for sellers.

Time on the market, the time from when you list your house until you sell it, was about 4 months. About 6,000 homes were sold or went pending, in the greater Eugene area, in 2008. Nearly 3/4 of a billion dollars of houses sold in Lane County last year. So, houses are selling.

Prices have fallen. How much is not as easy to figure out as you’d think. For instance, median sales price for the year 2008 was 220K, down 6.3% from 2007 (234.9K). When you compare median sales price of December 2008 vs. December 2007, 2008 is down 11% (200K vs. 225.6K). And, when you compare 2008 vs. market peak, in June 2007, the drop is 9.7 % (220K vs. 243.5K). So, what is it? My rule of thumb is prices are down about 10% from 2007. Put another way, houses have fallen from about $165/s.f. to $150/s.f., in broad terms.

In summary, now is a good time to buy and things are still selling.

December 2008

Eugene Market Information: December 2008

Year to Date.  Click the image to see the whole table.

Year to Date. Click the image to see the whole table.

Tightening Appraisal Standards

Appraisers are frequently in the background in the real estate business. Lenders are usually the ones who choose them, and the main question everyone concentrates on is: will the property appraise out (meaning the property achieves a necessary appraised value to get a loan).

I recently spoke with Kent Gibbons of Gibbons Appraisal Service, Inc. about the appraisal business. He’s been doing residential appraisals in the Greater Eugene area for 17 years. He reminded me that when he’s appraising, he arrives at a value of a property on the date of appraisal.

There are three methods appraisers use to arrive at value: comparable sales approach, cost approach, and income approach. Appraisers will often use the three methods and reconcile them in a report to arrive at an opinion of value. I often joke that the three ways of appraising a residential property are: comps, comps and comps. That is, comparable sales are the most important factor in determining a residential property’s value.

We talked about how to quantify Lane County’s market decrease over the last year or so. The best way would be to look several same-house sales in each of our neighborhoods. Unfortunately, we don’t have the sales volume to adequately do this. So, our methods of valuation are imperfect (but what isn’t?). As a general number, my rule of thumb is that our market has declined about 10% in 2008, but that’s not a hard and fast rule.

Lenders have grown more risk conscious and are scrutinizing appraisals more. Kent is now looking at recent sales, pending sales and actively listed properties to arrive at his opinion of value. Our changing market keeps all real estate professionals on their toes.

While the majority of Kent’s work comes from lenders, he’ll gladly do residential appraisals for individuals. If you’d like to reach him, his phone is 520-3767.

Residential Appraiser in Eugene Oregon

Kent Gibbons: Residential Appraiser in Eugene Oregon

Good Buys in Crescent Village

I’ve always thought Crescent Village town houses were both innovative and perfect for those wanting the “new urban” concept–a mini village cut from greenfield.. It’s quite close to our new hospital, and I’ve envisioned busy hospital people, not wanting yard-care, and wanting a central location as the buyers of the town houses on Lord Byron Place.

The market has been slow to respond to the townhomes, with only about 1/3 of them being sold to residents. (In fairness to the development, housing around 500K in price has been particularly hard hit during the recent credit and housing crisis.) About 1/3 of the houses are still owned by the three builders active in the project. And about 1/3 of the houses are owned by the developer or banks.

I’m sensing buying opportunities here. We have historically cheap interest, and the builders, developers, and banks will be eager to cut a deal. If you’re looking for chic new urban, this project is worth a look.

If you’d like to see them, give me a call at 517-6543 and I’ll be glad to show them to you.

Eugene's new Urban.

Crescent Village: Eugene’s new Urban.