Credit Scores, Government Loans and 100% Financing
Today’s guidelines are changing so quickly that it really keeps you on your toes as a Mortgage Professional so I was not surprised to receive this email from a Real Estate Agent:
Just had a client tell me she can’t get a VA loan with less than a 720 score. Huh? These clients were ready to put an offer in on a house they really liked when the lender told them that….is there a minimum for VA/FHA or does it all depend on the look of the whole package? Also, can folks still get 100% financing? If so, what’s the score needed?
I’m guessing the lender referenced above does not have the option of offering FHA or VA loans because FHA and VA insured loans currently do not have credit score requirements. Some lenders are opting to exercise credit score minimums and/or risk based credit score pricing (720 would be a very high standard). For example, a memo I received last week from a lender stated that that for FHA/VA loans with a mid-credit score below 585 pricing will increase from 0.50 - 0.75 in fee. Brokers looking to protect themselves from buying back loans, may decide to use credit score limits and are implementing maximum debt to income ratios regardless of what the response is from automated underwriting (the computer). Before you start shreeking about how people with credit scores below 585 should not have a mortgage, please keep in mind that the borrower needa to have clean credit for the past 12 months in order to qualify for FHA or VA financing and I’m certain their file will reviewed with a fine tooth comb.
On a side note, since we’re talking government loans, VA loans are no longer restricted by conforming loan limits. New loan limits vary from lender to lender. The highest VA loan limit I’ve seen from the lenders that I work with is a cool million.
Folks can still get 100% financing and they don’t have to utilize a VA loan. Freddie Mac offers Home Possible and Fannie Mae offers MyCommunity and Flex with LTVs up to 100% of the sales price. These programs provide financing with credit scores as low as 575. With a Fannie Mae Flex 100, the rate is around 1-1.5% higher than what I quote for a 30 year fix plus private mortgage insurance (pmi). This is not a bad deal however the higher the ltv and lower your credit score is, the more expensive pmi is.
“A Minus” pmi is pricey! With a 575 credit score (assuming the loan is approved) the pmi rate is 2.57% of the loan amount (divide by 12 months to determine the monthly premium) as compared to a 620 score which would provide you a rate of 1.42% or a 680 mid score at 0.96%.
Here are some payment examples based on a purchase price and loan amount of $400,000 (this is not intended as a rate quote) utilizing a 30 year fixed Fannie Mae Flex with Borrower Paid PMI:
575 Mid Score Borrower: p&i @ 6.75% = $2594.39 plus pmi @ 2.57% = $856.67. Total payment (not including taxes and insurance) = $3,451.06.
620 Mid Score Borrower: p&i @ 6.50% = $2,528.27 plus pmi @1.42% = $473.33. Total payment (not including taxes and insurance) = $3,001.60.
680 Mid Score Borrower: p&i @ 5.875% = $2,366.15 plus pmi @ 0.96% = $320.00. Total payment (not including taxes and insurance) = $2,686.15.
The Seller can contribute up to 3% of allowable closing costs for ltv’s greater than 90%. Please keep in mind that any of these programs can have their guidelines changed (such as credit scores increased or loan to value decreased) or lenders may stop offering them in this market.
The “whole package” for a borrower is more important than ever with lenders adding guidelines to automated findings (which I can’t argue with). Even with a down payment, Fannie Mae and Freddie Mac’s Loan Level Price Adjustments will cost you if your credit score if off by one digit. It’s crucial for anyone considering buying a home (or refinancing) with credit scores under 700 to start early with a Mortgage Professional. Improving your credit scores can save you big time with your mortgage payment.
Posted: January 14th, 2008 under Agent Advice, Buyer Information, Mortgage and Lending.
Tags: 100%-Financing, credit-scores, fannie-mae, FHA, freddie-mac, PMI, Private-Mortgage-Insurance, va
About the Author: Rhonda Porter
- Author's website: http://www.mortgageporter.com
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Comments
2.
Comment
from Rhonda Porter
Time January 14, 2008 at 5:16 pm
Various interviews from news media will also have you believe that 100% financing is gone. That’s why I love having the opportunity to “get it out there” that it is available.
If someone has a real low credit score, personally, I’d rather they worked on making sure that what ever caused the low score has been remedied (not just repairing the score) before they take on the responsibility of a mortgage debt.
3.
Comment
from Kary L. Krismer
Time January 14, 2008 at 6:32 pm
Well the point is more that if it’s available for people with low credit scores, it’s available for people with good credit scores. And there are actually some people out there that can do better things with their money than putting it into a house.
And, I’ve mentioned this before, but I like the move to single 100% mortgages over 80/20s. Less risky for the borrower.
4.
Comment
from Tim
Time January 14, 2008 at 8:44 pm
100% transaction are definately still here and so are stated income financing. Just saw a stated, but the borrowers were razor blade close to 800 FICO’s.
5.
Comment
from Rhonda Porter
Time January 15, 2008 at 4:31 pm
Kary, I’m not sure if there are 80/20’s out there. Most second mortgages want to stick at 90% ltv and I have one lender who will go to 95%.
I haven’t worked with my “alt a” lenders in sooooo long… I should probably contact them to see if 80/20’s are back.
I generally prefer the one loan scenario, too. Depending on what the person’s financial landscape looks like…if they’re planning on comnig into a lump sum of money and want to pay off the second because they have nothing better to do…then the piggy back mortgage may make more sense.
It’s the customer’s choice from what ever programs are available.
6.
Comment
from Rhonda Porter
Time January 15, 2008 at 4:34 pm
Tim, I just quoted a VOA (verification of assets/no income verified) jumbo for a refi…this person also has 800 scores. I would much rather do a “no income verified” than a stated income loan. It’s better to have the income blank on the loan ap than to have the borrower put something in that may or may not match their tax returns.
I’ve been getting more questions about 4506’s recently too (not my clients…from blog readers). I may have to do a post about that! 
7.
Comment
from Roger Ingalls
Time January 16, 2008 at 6:51 am
Rhonda:
There are still decent 80/20’s out there, but nowhere near as many. One file loans (w PMI or LPMI) are usually preferred today, but there is still a place for the 80/20s.
The underwriting landscape has definitely shifted in the month or so. Files that we would normally think are a shoo-ins have been getting pushback on automated underwriting engines, and once they get to a live UW, the pushback continues. These are on files w/700+ FICOs and low risk factors.
They are getting done (and sometimes the delays turn out to be a blessing, in a falling rate environment), but not without a much greater effort on the LO’s part.
Now is TRULY the time to be working with a Mortgage Professional!
8.
Comment
from Kary L. Krismer
Time January 16, 2008 at 8:01 am
Rhonda wrote: “It’s the customer’s choice from what ever programs are available. ”
That’s true. The situation you described (money coming later) would certainly be good for an 80/20. I was just addressing the liability aspect of having an 80/20.
9.
Comment
from Rhonda Porter
Time January 16, 2008 at 9:23 am
It’s a pet peave of mine that when a LO who does not have FHA/VA available for a client, they steer them to the product they have without letting them know of FHA/VA options.
Of course, this is easy for me to say since we are a HUD direct endorsed lender. 
10.
Comment
from Roger Ingalls
Time January 16, 2008 at 12:14 pm
Rhonda:
I have not had VA and FHA loans available to broker to borrowers in the past, but knew about the advantages and disadvantages of both. If it was a better route to go with either, I would tell my client to use a lender who could. Borrowers wanting cash out between 65% and 95% on a man-home was probably the most frequent use of FHA.
I have since changed my business model to allow me to originate both. You can call me Johnny Come Lately, I suppose, but it is better late than never to get on the right bus. It’s pretty full these days!
11.
Pingback
from Team Reba Real Estate » A good article from a fellow RCG’er about credit scores, gov’t loans & 100% financing
Time January 17, 2008 at 6:58 pm
[...] Rhonda Porter, one of the writers I truly enjoy over at Rain City Guide, wrote this excellent article on the above topic. It’s a good read for anyone looking into any of these kinds of loan programs. [...]
12.
Comment
from srini
Time January 18, 2008 at 5:32 pm
very interesting article about why this mortagage mess is just the begining and everyone is focused on sub prime, but it will hit other types soon …
http://blogs.marketwatch.com/greenberg/2007/12/straight-talk-on-the-mortgage-mess-from-an-insider/
13.
Comment
from Rhonda Porter
Time January 18, 2008 at 6:08 pm
Thanks, srini. Today I received more memos from various lenders (many of whom where mentioned in the article you linked) restricting guidelines further.
14.
Comment
from Chris Kubler
Time January 20, 2008 at 1:37 pm
It’s truly amazing what attractive financing is still available on the residential side. Ironically financing commercial properties in my area has become much more expensive and LTVs offered are atrocious relative to where they were 9 months ago. All that despite the fact that commercial market fundamentals remain sound.
15.
Comment
from A.KYLE
Time January 22, 2008 at 3:33 pm
I’M A REAL ESTATE AGENT IN MD LOOKING TO PURCHASE A HOME AS PRIMARY FOR $390-$405 I’VE PURCHASED HOMES IN THE PAST GOING STATED I DONT HAVE ANY HOMES AS OF 8/06 IS ANYONE DOING STATED IN MD 95%-100%
16.
Comment
from Rhonda Porter
Time January 22, 2008 at 4:02 pm
A.KYLE, you would need to contact someone in your state. I’m not aware of 95-100% LTV Stated Income loans of the top of my head (it may be out there).
You might be able to find 95% LTV using bank statements to document your income; however I’ll be the rate will be high. Good luck!
17.
Comment
from N. Espino
Time February 28, 2008 at 10:52 am
I am a CA resident looking to buy a home. 10 years ago my husband and I bought a home that went into a short sale. Our credit score is around 655, we can afford a mortgage but do not have any money to put down. We’ve had a few lenders tell us that 100% financing does not exist.
Can anyone refer me to a lender that may be able to help us?
18.
Comment
from Rhonda Porter
Time February 28, 2008 at 11:20 am
N. Espino, I recommend finding a lender in California who specializes in FHA financing. It’s not zero down…it may be your best bet. If you want to email me, I can send you a few recommendations for Mortgage Professional’s in California (I’m not positive if they do FHA).
Another option for you would be to meet with a California Mortgage Professional who can council you on improving your scores (680 would provide more options for you).
19.
Comment
from N. Espino
Time February 28, 2008 at 12:22 pm
Thank you. I would appreciate it if you could recommend a few Mortgage Professionals out in my area. I’m in the Fontana, CA area.
20.
Comment
from Rhonda Porter
Time February 28, 2008 at 12:31 pm
N. Espino, please send me an email and I’ll do that: rhonda (at) rhondaporter (dot) com. Thanks!
21.
Comment
from Robert
Time June 16, 2008 at 8:11 pm
Your article is excellent! Can you recommend someone who has a license in Florida, particularly in Parkland area, and who can provide the same excellent services you provide? Thank you.
22.
Comment
from Rhonda Porter
Time June 16, 2008 at 8:48 pm
Thanks, Robert. if you send me an email (so I have you an address), I’ll try to find someone for you.
23.
Comment
from Leslie B.
Time July 13, 2008 at 9:02 pm
My husband and I are trying to buy a bank owned property in Texas. It needs some updating, it has been empty for almost a year. We are qualified for a FHA loan but we are wanting to take out a second for the repairs. Our credit scores are in the 650s is this possible? Thanks
1. Comment from Kary L. Krismer
Time January 14, 2008 at 5:10 pm
On the low signal to noise board, they laughed at me when I told them 100% financing was still available. Of course, they were generally unaware that any financing was available.