In Eugene, as in the rest of the nation, lending standards for HUD insured loans—an increasingly popular option for home buyers—are becoming stricter. The following changes are scheduled or planned to occur this year:
- Increased mortgage insurance premium—beginning mid-April, the rate will be 2.25%, up from 1.75%
- Increased down-payment (10% vs. 3.5%) for borrowers with a FICO less than 580
- Reduction of seller concessions from 3% from 6%
These changes will make it harder for some borrowers to get loans, and will soften demand, somewhat, for house purchases. However, at least the changes aren’t too drastic.
HUD loans are a bright spot in a thorny lending environment.
If the Great Recession has damaged your credit score like so many of us, getting a home mortgage has been nearly impossible. But—Wells Fargo recently changed their policies to allow people with credit scores as low as 500 to get loans or home mortgages.
Although—to minimize risk—they’re requiring a higher down payment for those of us who are credit-challenged.
Will the other three big lenders (US Bank, Chase and Bank of America) follow suit? While it’s too early to tell—my guess is yes.
Loosening credit: 1 down and 3 to go
Banks agree with Realtors that credit is too tight. In a recent National Association of Realtors podcast, NAR President Ron Phipps discussed his recent meetings with Citibank. Folks who should be able to get mortgages aren’t getting mortgages…the pendulum has swung too far.
Things will loosen up again–but no one is sure how soon.
Due to the rush of foreclosures lately many are wondering what their options are for buying a home after foreclosure. While foreclosure is damaging to your credit, the reasons behind your foreclosure may affect how quickly you can buy your next home. Lenders look at things other than credit score when considering you for a home loan, and if they fail to see why you were foreclosed upon, they might assume you are what is known as a “walk away.”
“Walk aways” are what the loan industry calls those who have purposefully defaulted on their mortgage when they could still afford to pay it. This is done typically because the amount owed on a home is greater than the price; many believe they can simply walk away from the mortgage, allow the bank to reposes the house, build up their credit again and buy a new home. Be wary, though, as if lenders suspect that you have done this they will be hesitant to allow you to borrow. What is typically a 2 to 5 year waiting period for buying a new home could be increased to 7 years or more.
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.