Real Estate Matters
For First-Time Buyers, Tempting Prices but Tougher Rules
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If you're a first-time home buyer, you'll find it a little harder to qualify for a mortgage than your counterpart did two years ago.
Wall Street's credit crunch and record foreclosure rates have made investors nervous about home buyers with small down payments and lower credit scores.
While the number of first-time buyers is down, there are plenty of folks who are tempted by falling home prices and low interest rates. What kinds of loans are out there for them?
The kind of loan you're offered starts with your credit score. According to Fred Glick, a mortgage lender and real estate broker in Philadelphia, Fannie Mae and Freddie Mac, which buy most mortgages from lenders, are looking for credit scores of at least 660.
"We're absolutely accepting loans where borrowers have credit scores in the 600s," said Craig Nickerson, Freddie Mac's vice president of expanding markets. "There's no question that the stronger the credit of the borrower, the better product they can obtain."
"But there is a matrix based on the credit score and the down payment" that can change that number, Glick said. "If you put down 5 percent, you'll need a credit score of at least 660. But if you go with an FHA loan, you can put down 2.25 percent and, allegedly, they'll take a 580 credit score."
"With a credit score over 700, you can still get 100 percent financing," Nickerson said.
Federal Housing Administration loans are making a strong comeback, said Allen Jones, a spokesman for Bank of America.
"In the calendar year 2006, Bank of America originated $1.5 billion of FHA loans. In April 2007, we originated $1.1 billion in FHA loans," he said. In 2008, Bank of America predicts it will fund $5 billion in FHA loans. "With the changes FHA has made over the past year, it has become a sweet spot for us."
Who is a good FHA candidate? "Someone in a first or second job out of high school or college, who is working and can afford the property but might need help with the down payment," Jones said. "With FHA, a parent can provide the down-payment assistance as long as the borrower can afford the payment."
Jones said that the average credit score of an FHA borrower is about 620, though "there are plenty of 500s and plenty of 700s."
In San Francisco, Residential Pacific Mortgage's Dick Lepre said that his company no longer accepts applications from borrowers who have a credit score of less than 680. "Everything is being ratcheted up. It's as if somebody took every credit guideline and raised it 20 points," he said.
