If you’re in the market for a house, you may have heard something or other about some sort of “credit crunch” or “mortgage meltdown.” It’s been in the news just a wee bit, insomuch as “a wee bit” translates to “plastered on every available media space for the last two months.” So with all the rumblings in the lending industry lately (when’s the last time you’ve heard the term “subprime” more than 30 times in a day?), somebody’s got to be feeling the adverse effects, right?
Sure, certain people have. But the more important question, dear potential home buyer, is a little less general, isn’t it? That question being: Are you going to be one of those people?
According to Michael Guthrie, CEO and managing broker for Roy Wheeler Realty, the folks that have felt the lending industry squeeze the most are those trying to find loans for more than $417,000. “There’s been some interest rate increases,” says Guthrie, “but also some conditions for those loans have tightened.”
Along with the tightening of those conditions, like down payments and assets, lenders are starting to raise the benchmarks for credit scores. “Prior to this most recent situation, somebody with a 650, 660, 670 credit score was in a position where they could borrow whatever they qualified for,” says Guthrie. “We have seen and talked to lenders who’ve said that the amount [of the lowest credit score to secure a loan] has gone up, so that’s higher compared to a couple/three months ago.”
So let’s say that the plasma screen you bought three years ago has dinged up your credit score a little, and that you’ve hit a bit of a cold streak at the poker table and your foldable money ain’t what it used to be. You’re likely out of luck on buying into the American dream of homeownership despite maintaining good financial discipline the last couple of years, right? Not so fast, says Matt Hodges, owner and loan officer at Compass Home Loan.
“For low- to moderate-income [buyers] that perhaps don’t have the highest credit rating and that have small or no down payment at all, there is a variety of solutions that work, whether it is the Virginia Housing Development Authority (VHDA), Fannie Mae’s My Community program, or looking at the aspects of their particular credit picture and seeing how we can improve their credit rating,” says Hodges.
Government-sponsored lenders like Freddie Mac, Fannie Mae and Ginnie Mae are looking more and more attractive as private lenders start eyeing each potential client with more skepticism. And as jumbo and A-minus loans (for those with good but not perfect credit) become more difficult to get for those with shaky credit and marginal assets, the federal government is trying to make Federal Housing Authority (FHA) loans more competitive with the FHA Modernization Act sponsored by Maxine Waters (D-California). The Act, which was approved by the Senate Banking Committee and will soon be up for a floor vote, would cut the 3 percent down payment in half while allowing the FHA to write loans for larger amounts.
And don’t be scared to ask for help—from your loan officer. With the state of the industry, the more quality loans they write, the better. He or she can find ways to help you improve your credit (contacting lenders of past-due accounts, limiting credit shopping to 13 days) or even scrape together a healthy down payment…assuming that pair of jacks didn’t play quite as well as you might have liked.