FHA has announced that they will be tightening their lending guidelines in 2010. The changes are designed to strengthen FHA reserves. Due to the increase in foreclosures, FHA reserves have dipped down to just .53% of the value of insured loans. Congressional legislation requires that they keep their reserves at least 2%.
Now, you might think that the foreclosures causing the changes were caused by the aggressive lending practices that once existed. It is surprising to learn that 20% of all new mortgages (read: made after the real estate bust and mortgage market implosion) are actually in some stage of default.
Under the new guidelines, borrowers with scores less than 580 will be required to put at least 10% down. The 3.5% required down payment will remain for borrowers with credit scores above this. While it is a relieve to some that bad credit mortgages still exist, it will certainly be more difficult for many to get into a home.
Seller concessions will be reduced from a maximum of 6% to a maximum of 3%. Another major change is that the required mortgage insurance premiums will be increased by 50 bps, going from 1.75% to 2.25%. These two changes will cause a significant increase in the amount of cash that borrowers must bring to the table.
There is some debate as to how much the new guidelines will really impact the mortgage industry. After all, in early 2009, most banks shifted their underwriting guidelines to not make loans to individuals with credit scores below a 620. (Remember – the FHA insures loans that meet their guidelines but it does not underwrite them. The individual lenders are the ones who underwrite the loans.)
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With so much bad information about credit restoration in the marketplace, I often get asked by people what will prevent them from qualifying for a mortgage within a 12-24 month time frame. Let’s be honest – If you are working on credit repair mortgage application can be nerve wracking. So, if you are presently working to restore credit for the purposes of qualifying for a mortgage so you can eventually own a home in your own name, here are the top 5 things that will stop you from qualifying (this list assumes that you have sufficient documented employment, income, assets, reserves and down payment):
- YOU!………….That’s right! The number one thing that will stop you from qualifying is YOU! What do I mean by that? The bottom line, as it relates to credit restoration, is this………….are YOU committed to doing what is necessary to restore your credit? Don’t be so quick to jump the gun and shout, “Yes, of course! Why wouldn’t I?”. The fact remains that credit restoration requires a comprehensive, well devised, short and long term plan. It also requires a commitment of time and money. No one is going to do it for you and no company can do for you what you can. So, if you want to understand the biggest obstacle to credit restoration, go look in the mirror. Then, make a commitment to putting together a solid plan and stick to it.
- Because most people that are working on credit score restoration are looking to qualify within 24 months, another impenetrable obstacle is a foreclosure on your credit report in the last 12 months. Most current lending guidelines now require a minimum of 36 months seasoning from the foreclosure date to qualify for a mortgage.
- Another giant hurdle is federal and/or state tax liens. Lending guidelines require that you pay off any state or federal tax liens prior to qualifying for a mortgage. So, if you have tax liens, do you have the financial ability to pay them off prior to the time you are qualified for a mortgage? Also, if you don’t have tax liens, are you hiring the necessary tax professionals to ensure that you don’t get any? Allow me to tell you from personal experience, with more than 80,000 pages in the current tax code, only a fool does his own taxes.
- Judgments- Judgments almost always have to be paid and as such, doing so is a critical part of credit repair for mortgage qualification. The question again becomes, do you have the financial wherewithal to pay the judgment prior to the time you are qualified for a mortgage?
- And this is probably the biggest thing given the current lending environment, and that is, lenders changing guidelines. This seems to happen on an almost daily basis with credit score guidelines continually being raised, income and asset documentation being scrutinized to a greater degree, etc. This is the one thing you cannot do anything about, except, continue working diligently on credit repair and stay abreast of the current lending guidelines so you always know what you need to qualify.
If you are tired of having derogatory credit and are ready to develop your comprehensive plan and jumpstart your credit restoration, I encourage you to enroll in Credit Repair College and get my free CD. Credit Repair College is credit restoration on steroids and will provide you with the insider secrets, tips, strategies and live video on exactly what you need to do, step by step.
You can sign up here and watch a free video on my number one insider secret to credit repair that most people don’t know: http://www.creditrepaircollege.com/freecd
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