Mortgage myths keep some buyers from looking
The myths about mortgages are out there, and they’re keeping some buyers from taking advantage of the greatest buyers’ market in decades.
The myth is that credit scores have to be near perfection to qualify for a loan and that buyers need a 20 percent down payment to get a loan.
Neither one is true, but lenders agree that requirements have gotten more strict, and that’s not all bad.
“It’s gone back to the basics,” said Jill Derrieux, senior loan officer with Guild Mortgage, 501 Main St. “Credit score requirements have gone up and we have to check assets and employment history.”
There are several programs available for buyers with low down payments, and there are also homes and programs for buyers with no down payment. Credit scores for most of those programs have to be 620, which is about 50 points lower than the average credit score in Colorado.
The United States Department of Agriculture offers rural development loans of up to 100 percent of the purchase price, but homes have to be in designated rural areas. There are guidelines for borrowers, as well, but a mortgage professional will be able to determine eligibility.
There are also several programs to help buyers purchase bank-owned homes. Homes that were purchased with a Federal Housing Association (FHA) loan and are now owned by the Department of Housing and Urban Development (HUD) may be available through a HUD program that allows buyers to purchase a home with a $100 down payment. Only primary buyers are eligible for the program; it is not available for buyers looking for investment property and only some FHA homes qualify for the program.
“A lot of them need work,” said Justin Harris, manager of Guild Mortgage. Fortunately, there are programs available to help buyers finance the repairs, as well. “We can do a repair escrow that covers the cost of repairs up to $5,000.”
Some home need more than $5,000 to make them habitable. For those homes, borrowers may want to look into a 203(k) loan, which borrowers can utilize to finance the cost of the repairs into the loan amount.
The loans can be used for any home, including homes that do not qualify for the $100 down payment program. Borrowers can also combine a Colorado Housing and Finance Authority (CHFA) loan to help with down payment assistance.
The home doesn’t have to be unsafe or in disrepair to qualify for a 203(k) loan. It can simply be ugly, needing new carpet and paint to give it a fresh look. Buyers can use a 203(k) loan for appliances, roofing, plumbing or dozens of other improvements and have to have written bids for all improvements. Homes must be brought up to FHA standards of livability. No hot tubs on the back deck if the wiring is suspect in the kitchen.
Some homes that are owned by the Federal National Mortgage Association (Fannie Mae) may be eligible for the Home Path program, which allows buyers to have a 10 percent down payment rather than the conventional 20 percent. Not every home owned by Fannie Mae is eligible for a Home Path loan, but real estate agents should know which homes qualify and which do not.
Just as there are different types of mortgages, there are also different types of mortgage companies. A mortgage bank, like Guild Mortgage, services the majority of the loans it makes. If a borrower has an issue five years into the loan, the borrower can go to Guild Mortgage for help. Other mortgage companies choose to sell the majority of the loans they make, which gives them the flexibility to shop around and look for the best rates and offers on any given day. Some mortgage companies can do CHFA loans while others cannot.
Mortgage companies can also help home owners who aren’t interested in buying a new home, but would like to take advantage of current low interest rates and refinance. Home owners who’d like to refinance and make home improvements can use the 203(k) loans to do so. Homeowners who purchased before May, 2009 may be eligible to refinance up to 125 percent of their home’s value under the Making Home Affordable program.
If it all sounds confusing, don’t worry. A mortgage professional has all the information at her fingertips, and with a couple keystrokes, should be able to help buyers find a loan program that works. A mortgage professional may also be able to give prospective buyers tips for improving credit scores.
Robin Smith, branch manager of Caliber Funding, warns consumers to be wary of companies that promise to repair credit. Although some are legitimate, some simply charge too much money and don’t provide any real benefit.
“We have an e-mail service and will send consumers steps to improve their score,” Smith said. According to Smith, the first step in improving a credit score is checking to make sure that all information is correct. Next, pay down high balances. Smith recommends keeping a balance that’s no higher than one-third of the credit limit.
“Closing accounts isn’t helpful,” Smith said. “It’s helps a score to have available debt that’s not being used.”
Shopping for a mortgage doesn’t need to be confusing or time-consuming. When considering different mortgage lenders, be sure to ask plenty of questions, understand the process and feel comfortable with your lender.