Zero Down Loan? You Better Have a 620 Credit Score or Higher

Update 11/11/2008This is post is more of a reflection of the times.  Zero down loans are not available with convetional financing at this time.  Private or hard money may have zero down loans available.   FHA with a loan from family members is the closest to 100% financing that I’m aware of.   As with any posts about mortgage guidelines, be mindful of when they were written as guidelines have (and will continue to) change.

I’ve been working on a zero down rate quote for Jillayne, since she requested that two weeks ago when I did my posted my first Friday rate’s on RCG.   She was curious how 100% loan to value mortgages compare based on different credit scores.   At the company I work for, we have around 80 (woops…make that 78 now) lenders we work with.   A majority of our business is handled in our credit line (Mortgage Master is a Correspondent Lender) and some business is “brokered”.  Typically this is subprime or unique loans with added risk.   As a Loan Originator, you wind up selecting 3-5 of your favorite “a money” sources, a few “alt a” lenders and of course, and I like to have around 3-5 sub-prime lenders.   These are the lenders and representatives you rely on, get to know their products and trust their underwriting.   

Back to Jillayne’s request, last night I called my three preferred subprime resources for my rate quotes…what’s the lowest credit score they will lend to at 100% ltv and is the rate and program?  Thanks to RCG’s Tim, I’ve just learned that one of those resources I’ve relied on, New Century…and the only one that I work with who did quote yesterday an 80/20 with a 600 mid-score is facing troubling times to say the least.

“New Century Financial Corp. said it’s the subject of a criminal probe and Fremont General Corp. agreed to a cease-and-desist order with bank regulators in the biggest regulatory actions to emerge from the subprime mortgage meltdown.”   To read the entire article on Bloomberg, click here.

Every day I’m receiving memos from various subprime lenders with details of (much needed) tightening guidelines.  If you currently have clients shopping for a new home and they are using subprime financing (you might know this if they’ve told you their credit is not great, if the mortgage is a 80/20 with a prepayment penalty, etc.) you just might want to contact the Loan Originator to make sure the preapproval is still valid.  If that client has a credit score below 620, they may (1) not be approved any longer or (2) be approved for an entirely different rate (much higher). 

Subprime lenders are either eliminating their zero down products all together or are raising the credit score requirements.  Previously, a 580 – 600 mid-credit score was no problem for 100% financing.   They were beating down our doors to do these loans!  Now, the new standards for mid-score (with the lenders I work with) seems to be 620.  This is a significant jump that will delay some rentsers from buying homes until they improve their credit.   Which again, I think this is good.

I’ve mentioned this before, but this is so important.  If you have clients who have used subprime financing who have purchased homes in the past 1-2 years, this could be a good reason to pick up the phone and call them.   Hopefully they received good counseling from their Mortgage Planner AND they took the advice to heart…working on cleaning up their credit usage, managing their spending, etc.  With the subprime market tightening, if those subprime borrowers have credit scores below 620 when their prepayement penalty is up and their fixed payment is adjusting towards the sky, they may be are in a very tough situation.

Jillayne, this post is all ready a bit long… I promise I’ll have your zero down rates posted soon!

84 thoughts on “Zero Down Loan? You Better Have a 620 Credit Score or Higher

  1. Hi Rhonda,

    Thanks for the heads up on New Century and Fremont. My latest edition of Scotsman just arrived in the mail with lots of glossy, flashy wholesale lender ads, screaming at mortgage brokers for business.

    Rhonda, has there been a slowdown in retail originations because of the tightening underwriting guidelines? I’m going to guess “no.”

    I’m really interested in hearing from real estate agents and regular RCG contributors on the following: Has the subprime meltdown….

    1) affected the ability of home BUYERS to close on their existing deals?

    2) slowed down your cache of home buyer clients?

    3) triggered your phone to ring from home owners who are not able to refi, and now need to sell?

  2. 620 is tightening? OMG. 620 is pretty much a crap credit score. Hope this isn’t a sign of how bad things are going to get.

  3. Jillayne-

    1) Yes, and we’ve had some delayed closings too.
    2) & 3) Ask LO’s.

    It is important for agents and LO’s to understand that in this volatility, if delays occur or loans don’t close, refrain from blowing a spark plug. Understand it is a drag for everyone and that if all allied real estate pro’s work together on workarounds and provide some flexibility, transactions can and do get back on track.

    This is NOT to say everything is falling apart. Most transactions are smooth. It has to be very frustrating for LO’s not knowing who will fold next within the Alt-A or sub-prime market or if underwriting guidelines or new conditions will all of a sudden appear at the last minute for their borrower (this has happened).

  4. 1) I’ve not dealt with yet…that’s just my current pipeline conditions.

    2) Not yet. But I’m trying to warn agents that the “miracles” I may have worked before are not working any more. With that said, many of the 80/20 subprime loans that I’ve done have been very successful. Very few that I know of have not worked out.

    3) Not yet. That’s my biggest concern. I’m contacting all of my “subprime” clients to let them know they need to work on their credit NOW. It’s time for Mortgage Planners to be doing Annual Reviews of all subprime clients to help them get on track if they are not.

    Tim, I HOPE the LOs you work with understand what’s going on. How could they not? I am amazed how many real estate agents seem oblivious to what’s happening in the mortgage industry right now. Do they just think LOs will continue to be miracle workers or what? I’m always flattered when I’m called that…but it’s also something you almost don’t want to be known as.

  5. In response to Jillayne’s first question, I’m working with a buyer who was preapproved several months back. It was smooth sailing from mutual acceptance until last week, when her lender sent notice that due to the recent revisions she no longer qualified. (Ouch.)

  6. Is there any backlash or increasing restrictions on appraisal valuations? Perhaps from loan originators, or from investors who buy up mortgage-backed securities?

    It seems that investors in MBSs would not only be concerned about the credit-worthiness of borrowers, but also the accuracy of the value assesment of the asset backing the loan.

  7. A few months ago, one of the “a paper/alt-a” lenders I work with began requiring interior photos (kitchen, bathroom and livingroom)on all appraisals. I’m told this was due to appraisal fraud.

  8. I have been noticing for a while that it was harder to get clients approved. As an agent I send lots of folks to mortgage brokers and so many of them are not finding approval. Now I wonder why the mortgage folks I work with have not explained why. This is a reaction to the market that really makes sense considering the foreclosure rates, but it does not make it easier for people to buy homes, which in the long run may be for the best.

  9. Pingback: phil.rice » Blog Archive » Train Wreck

  10. I am a firm believer that people with poor credit are better off repairing their poor credit before taking on more debt (mortgage).

    If someone has a sub 660 credit score (below 660 is what I have seen described as subprime) they would be doing themselves a huge favor by paying off their current debt, and making some timely payments then they would by taking in an additional few hundred thousand or so in additional debt.

    Anyone that loans someone money with a credit score that poor should be slapped when they are surprised they aren’t paid back.

  11. Matthew – I spoke to a Realtor that works in my building about this issue sometime in 2004. The conversation started out about 1-year ARMS. I was clueless about who was using them.

    His explanation was that he’d recommend them to clients with poor credit scores so they could buy now and refinance after they’d improved their credit score.

    It seemed impractical at the time – but he explained that during the year duration that the average client would be unable to improve their credit enough to justify waiting – and in addition, would be unable to save up enough money to compensate for the price appreciation they would be missing out on.

  12. Having a mortgage, when paid on time, does improve your credit score. I have never provided a 1 year or monthly ARM. The shortest term has been the subprime 2 year 80/20. None of them were provided without serious counseling to my clients. A majority of the people I have provided these mortgages to have greatly improved their credit and their financial picture.

  13. Matthew,

    I have a wonderful client who had a credit score below 580 when I met him. I introduced him to a lender who got his score up to 580 and I helped him buy a property with some seller financing.

    He’s a wonderful man and he HAD to buy a property as a 1031. His investment property that he had before I met him was trashed by the tenant, and it took him months to get the tenant out, which caused his credit problem. He didn’t have the moeny to pay the capital gain if he sold the property without buying, as he had borrowed against the equity.

    He has made over $200,000 on the property, was well able to make the payments. His credit score is now way up and repaired. He had no capital gains tax to pay.

    He has made all of his payments on time as his credit score was trashed by the circumstances involving his bad tenants. It depends WHY the score is down. Every case is different and good professionals treat every case with an eye toward what is best for this client and does not generalize.

    Also, the agent on the other end who sold his trashed property put up the $10,000 plus to repair the property so it could be sold at a good price.

    There are plenty of good professionals who know how to help people in these situations.

    It’s not good to generalize or badmouth professionals “Anyone that loans someone money with a credit score that poor should be slapped when they are surprised they aren’t paid back.”

    If you ever find yourself between a rock and a hard place, like this man, you will be very happy to find a woman like me willing to devote 9 months of my time to finding a satisfactory conclusion to his woes, and the other agent who footed the bills for the repairs to his trashed property.

    Time for you guys to start recognizing that we are not all the meanie monsters you make us out to be. We do some very good things for some very distressed people. It was the tenant who created his problem and the agents who fixed it. And MANY agents refused to help him when they found out his credit score was less than 580.

    I not only helped him, but I continue to monitor his progress and make sure he’s OK and he followed my advices every step of the way. Thanks to a lender, two agents and some nice sellers who I convinced to give him some temporary financing, his bad situation has turned into a good one. He is a wonderful man and well deserving of our help. And he continues to be grateful to those who helped him in his hour of need.

    I really have no bad stories. All good ones. So stop pointing fingers and casting underserved negative aspersions around here. Go find the meanie monster’s blog, wherever that may be 🙂 Your finger pointing is not deserved here.

  14. Thanks Ardell. The good stories far out number the bad. Media loves tragic stories…no news is good news. Not at all to belittle what subprime borrowers will be going through…we will not be seeing or reading about the family who had lower credit scores, got the 80/20 and have since refinanced it and are living happily ever after. And that’s pretty much what my supbrime (no longer subprime, actually) families look like.

  15. Meanie monster? I’d call myself the reality monster. When reality sets in, and people are no longer collecting 200,000 in equity, we’ll see if the story remains the same.

    It seems like a bunch of lenders are going bankrupt right now, for loaning money to people with poor credit scores. I’m happy that the guy in your scenario was able to make it so far, and hopefully he will not be a subprime casualty.

    22 percent of subprime loan owners missed a home loan payment in Q4 of 2006. Trillions of dollars in loans are set to be reset upward. It can only get worse. These are facts, if a wake up call is being mean, call me Mr. Meanie.

  16. Matthew,

    My reference to “Meanie Monster” was how some portray “ALL Agents” in these comments, not a description of you or other commenters here.

  17. Ardell,

    I try not to personally attack anyone on this message board. I was merely stating that lending money to people with poor credit scores is a risk, sometimes it works out (like in your scenario) sometimes not so well.

    I’d like to share a personal story since you shared one with me.

    I went to college with a guy named “Bob”. Bob didn’t like to go to class very much, but he did like to party and drink. Bob spent 7.5 years in college, received no degree and racked up over 100,000 in debt. Bob called me once to ask if he could borrow my credit card number because his was maxed out, and he wanted to put some money on the Seahawks game on his online gambling account. Bob was bouncing checks left in right, his answering machine usually was a list of creditors trying to get their money out of Bob. Bob’s credit was so bad he tried to buy a 35,000 dollar boat, but they wouldn’t sell it to him. Bob was a master of words. He was a silver tongued ladies man. After I told Bob that it would be a cold day in hell before he ever used my credit card on a gambling website, he convinced some naive college girl to loan him hers. Well Bob was also able to convince a girl to co-sign on his loan for the boat. Girl was not happy 1 year later when Bob was living at home and not able to make payments on boat and forced to sell.

    Fast forward to today. Bob still has no college degree. Bob still likes to party. Bob is still in debt up to his eye balls in student loans and credit card debt. Bob still has one of the world’s worst credit scores. Bob is PROUD HOMEOWNER! Bob is looking to buy second home as “investment property/house to flip”. (yes this is a true story)

    See, Bob is going to ruin the situation for guys in your scenario. Soon enough, lenders aren’t going to care if a heartfelt story is behind their aforementioned poor credit score. They are going to draw a line in the sand, and not loan money to people on the other side of the line. I’m sure Bob had just as a good story as the guy in your scenario, he is a master manipulator, and someone probably felt some pity for him and gave him a loan. Unfortunately for the rest of the subprime candidates, they are going to be screwed in the future.

    I realize that it is human nature to want to nurture those in financial trouble. However, at least in my mind, home ownership is a privilege not a right. If you have shown fiscal responsibility, indicative of a high FICO score, you have earned the right to receive a loan. Lets be real here, a FICO score of 620 is not exactly high. You have to have some serious credit problems or past delinquencies to have a score below that. I’m sure everyone has a reason in their past why their score is low, but in the future lenders aren’t going to take the risk. Their are too many Bobs out there.

  18. I think my sister is dating a Bob! 🙁 Underwriting use to be done by credit history, before credit scoring and automated (computer) underwriting. Now you “run a loan” through the system to receive a computer response that has supposedly weighed out the various risk factors before spitting out a loan approval. Rarely is a loan “manually” underwritten.

    When you look at a loan application, bank statements and a credit report. You see so much about a person. Some people have “subprime” credit due to circumstance–it was not their fault and their credit will rebound. Others are habitually subprime…they’re the Bob’s of the world. I do believe that some of the Bob’s may be able to be coached or educated into better financial habits and yes, this should take place BEFORE they are a home owner.

  19. Matthew,

    I have to reveal that when FICO scoring became the be all end all, vs. going through the actual report, I wanted to puke. I was incensed! I was mad as hell! I think lenders being able to charge more interest based on FICO score alone is a huge disservice to many, many people. I hate it.

    I think the underlying issues of the credit report are much more important than the score itself.

    In the old days I often found things on people’s credit reports that were not theirs at all. The funniest one was the man who had a medical bill and I couldn’t convince the credit bureau to remove it until I figured out it was for the hysterectomy of a lady named Louise and not my client Louis. English was not his first language, so he was just confused. We actually had a big laugh at the end, but today if someone just gets their score, and doesn’t look at the detail, that situation would be no joke.

    How many people today are penalized by FICO score for things that are not even theirs? I don’t even like thinking about that.

    I see many, many people with scores under 620. Most work on things until they get it up past 620. But often they are minor things. I’ll defer to the lenders on this one.

    Someone said less than 600 is a “crap score”. I don’t think so. Many are not at 700 or better and are not crap. What do you lenders say? Where do you draw the line between “crap score” and not “crap score”. That number keeps rising. Used to be 580. Was once a little less than that at 560. Now it seems to be 620. But we can’t insist everyone have 700 or better. Never have loans been only for “A” Paper People. That is just not fair.

    Does anyone know the minimum score for FHA and VA?

  20. It’s been a while since I’ve done a VA or FHA loan. If memory serves me, FHA and VA is not credit score based (or so they say). It is based on credit history ie no late payments (last 12 months are the most important). With that said, a lower score will be scrutinized more. The whole package is considered. Last year, I did an FHA refi for a couple who were in the process of a Chapter 13 BK, the BK was due to a series of life events that happened and being self employed at the time. He only had 2 scores 550 and 650 (when you have two, you use the lower) and she had 3–her mid score being 638. We were able to refi them out of their subprime loan and save them huge money with their FHA 30 year…they’re fantastic clients.

    With the subprime market changes, I will be boning up again on FHA and VA. Many zero down products in the past offered better terms/payments for people who were FHA candidates.

  21. Ardell –

    I love your comment about “never have loans been only for A paper people. That’s just not fair”. In my career, I have worked with some wonderful clients that were not “A” paper and I am glad that there were products out there for them. Some of them did go FHA, while others did zero down, either way, they got the financing they needed. With proper consultation from the lender and the real estate agent, I think these buyers can make good decisions and purchase a home. Thanks for sticking up for the little guy!

  22. Rebecca,

    Great to find your new blog! You’re the first person I’ve seen integrate the Market Snapshot into the sidepanel of a WordPress blog. Very cool! 🙂

  23. Thanks Dustin! I am trying to take to heart what I learned from your seminar and apply it so that I can get out there and focus on great customer service.

    Interestingly, I just heard a lender speak to the very issues addressed in this blog article today and thought it very cool that I already had a heads up on the issue.

    It will be interesting to see what happens to the sub-prime market. We just need to keep educating ourselves so that we can help our clients that aren’t the “perfect credit” candidates.

    To the lenders out there – please keep us up to date on what is happening. Thanks!

    By the way – RCG is a great forum for learning and sharing ideas – but you all already knew that! 🙂

  24. Pingback: Red Brick Blog » Blog Archive » Where Did All The Money Go? - Part 1

  25. Affected by sub-prime mortgage demise: wanted to ask your opinions:

    After a year of working on improving my credit score it went up from a mid 480 to a mid score of 581. I have little debt just 26k that I owe on my jeep and about 8k in student loans. No credit card debt. My scores are low because of a few collections and judgements from college and not paying credit card bills on time and one charged off.
    Everything on my credit is current now and my three scores are
    Equifax – 605
    Transuion – 581
    Experian – 566

    I started my property search in Feb with a mid credit score of 581.
    The property sale price is 539,000k and I planned on putting 5% down.
    The first lender Suntrust quoted me with 5% percent down a GFE
    of 40yr/fixed at 9.725% no points
    9.050 1 point
    8.3 2 points
    2% pre-payment penalty

    Another lender FIRST bELMONT Mortgage that I submitted an app for came in with a
    2/48 ARM BALLOON loan at 9.5% with 5% down
    2% pre-payment penalty

    I was gonna go with Suntrust because I use them for my personal banking and I figured
    that they were the more stable company and the closing should go pretty smooth. Right around March
    and the sub-prime mortgage turmoil both of these lenders new guidelines forced me to have to put 10% down on
    the loans.

    The rates on the loans pretty much remained the same. I was pissed but
    was told that this is the only why the loan would ever get approved. Im currently
    saving money for the down payment which will leave me with no reserves. I make about 10k
    a month and am looking at a payment of about $4500 on a loan amount of 485k. The seller and realtor help is

    My close date is set for end of may or as late as end of june depending on if im able to come
    up with all the money needed. I have about 38k in savings now and will be around 48k in end of May.

    I recently signed up with the Lending tree just to see if there was anyone out there that could
    do better then the 9% rates and because I cant believe with putting 10% down im still facing these
    charges. I found a guy who thinks he can get it done for me at 30yr/fixed at 7.875% with Surepoint lending but
    he sent me a GFE based on a mid score of 620. He thinks he can get my credit up to point by the end
    of May by helping me clear up a judgement in the amount of $208 dollars that has been on my credit
    since 2002. All the other brokers told me not to touch it because its been dormant and may have an
    adverse effect. At this point I dont know what to do. I dont feel comfortable putting 10% down and
    paying such horrible rates. Im very tempted to just call it all off. I have 3k put up for my earnest deposit.
    Im almost just willing to let that go because i worked with my realtor to get a financial contingency in the contract
    but it turns out the contingency only covered getting pre-approved which in this market doenst mean
    anything! i want to fire her but i signed a buy agent agreement and i cant use another agent for 6 months
    which will be August which could work out if i decided to just wait for my score to improve. Im also
    studying for my Realtors license and am thinking about representing myself if the deal does not go thru.
    Im open to any advice? Should I just be patient and continue to wait although i love the home and its
    very unique for this area.

  26. Chris, that’s a real tough call and it’s hard for me to advise you about your credit without seeing your entire report. Paying the collection may trigger it to appear as “new” with your credit score. Especially if it’s from 2002. This could potentially lower your score. Is the broker you’re working with considering rapid rescore with paying off the judgment?

    What could also be impacting your scores more would be the balance/limit ratio. Scores are dinged with the balances are over 30% and 50% of the credit line. So for example, if you have a credit card with a $1000 line and a $504 balance, paying it below $500 will improve your score some, paying it under $300 will improve it more.

    I have to defer to the RCG Agents regarding the buyer’s agency.

  27. Chris,

    Sounds like you are already in contract with no legal out? Is this correct? Do you have any legal outs? Are you past your home inspection contingency? Doesn’t sound right as to the Finance Contingency only covering the pre-approval process. Is it a NWMLS contract?

  28. Thanks for your replies!

    The new broker is considering rapid rescoring and is actively working trying to get the judgement updated for me very quickly. He also mentioned “opting out” to help the score which was a surprise.

    I am passed the home inspection contingency and appraisal contingency. My Realtor chose to only give us two weeks get things done and once we passed those dates we couldnt extend. I have no idea why she led me to believe the Financial Contingency would cover me if I could not close on the loan. She knew what the aim was from the beginning not wanting to lose the Good faith esp in this market after my previous Lender Freemont went bankrupt. The seller would have agreed but she thought that pre-approval was enough i guess. In this market final approval should have been the contingency.

    I think my only legal out left is when I recieve the condo docs. Its my understanding that i will have 3 to 6 days to get out after I receive the docs via mail. Luckily the Seller hasnt shipped those yet. My Realtor hasnt told me if that is an option because i know she wants the deal to close.

    I think it is a NWMLS contract.

  29. Hey Rhonda,

    I heard something the other day that when you get offers from credit card companies in the mail saying “pre-approved” that they have run your credit. That if you get two of those a week, these companies can all be “making inquiries” and damaging your score.

    Is that even remotely possible? Can these companies run your credit without being authorized?

  30. They don’t have to run the credit…they can buy it! (That’s the link above).

    I think most of the “preapproved offers” have some fine print saying “you’ve been invited to apply …”.

  31. Condo Complex. The “out” you have is not about something the seller mails to you. It is the Resale Certificate prepared by someone other than the seller and usually goes straight from the person who prepares it, who is never the seller, to seller’s agent to buyer’s agent, and I’ve never seen it “mailed”.

    You said, ” It’s my understanding that i will have 3 to 6 days to get out after I receive the docs via mail. Luckily the Seller hasn’t shipped those yet.”

    I’m assuming it’s a private resale and not a new construction or conversion project, based on what you’ve already said. What was the date you “signed around”, last signature date on contract?
    If I know the name of the Condo Complex, I can usually figure out who the management company is that is preparing the Resale Certificate for “pick up” so you can check on the status.

    The seller must order it and pay for it, but it’s like a college transcript, better if a third party picks it up (like a sealed college transcript). That’s not required, but it is best done that way and usually done that way.

    Look at #19 on the first page of your contract. That gives you the number of days from the last date the contract was signed to the time you are to receive the document. It’s a fill in the blank, so I can’t tell you, you have to read it.

    Then look at page 4 of 4 of the main cotract, letter w., that says “Buyer shall be conclusively deemed to have approved the Resale Certificate unless, within 5 days following receipt, Buyer gives notice of disapproval of same.” Read the next sentence as well.

    Don’t have the form # handy, but cancelling is simple if done on the proper Rescission Form. As soon as you know you want to cancel, fax that in writing to your agent for your records and ask her to prepare the Rescission form, if that is what you decide to do. Don’t wait until the last minute of the 5 days as she has to prepare that form and get it to the seller’s agent by 9 p.m. of that day.. And don’t ever tell anyone (even us here) that you plan to cancel before you get the Resale Certificate in your hand.

    It says the seller gives it to the buyer, but normally the seller orders it and one of the agent’s picks it up. So make sure you know the date you are supposed to receive it by looking at line 19 of page 1 of 4.

  32. Rhonda,

    My concern for Chris is the 581 midscore. If it falls to even 578, isn’t he SOL? Wouldn’t the rate pop even higher if doable at all? 581 as a midscore doesn’t seem to give any breathing room at all.

    Am I reading that right?

    Also NO agent should write an offer, sorry I really shouldn’t say this, but NO agent should write an offer that requires substantially more cash from the buyer than the buyer has in hand at the time the offer is written.

    “My close date is set for end of may or as late as end of june depending on if im able to come up with all the money needed,I have about 38k in savings now and will be around 48k in end of May.”

    No agent should write a contract with substantial portions of cash needed to close, not in hand at the time the offer is written, unless they are willing to cough up the difference, if needed.

  33. Chris,
    am I’m understanding everything you’re saying:
    1) this loan is based on a credit score you don’t have…yet
    2) you’re still saving up money for the 10% down, when…
    3) it’s closing in 2 weeks?

  34. We really need a darned max rate cap in these finance contingencies and we need them to stick through closing. They are sometimes so freakin’ worthless.

  35. It sounds like the lender wants to help, but I’m not sure it’s the best advice. There is no guarantee when tinkering with credit scores. I advise clients on how to improve scores BEFORE they purchase and are in a transaction. Rapid rescore does not guarantee an improvement in the credit rating AND it’s expensive.

  36. “I make about 10k a month and am looking at a payment of about $4500”

    That’s almost half your gross for just housing payment. It should be more like 33% or $3,300 INCLUDING taxes and condo fees. How much is that jeep payment per month?

  37. Ardell,
    Roll up you sleeves! With a subprime loan, 50% dti is the going figure. 😉

    Chris, do you have a current loan approval at 580? Your lender might want to try Equifirst as a broker. Your rate may stink, but they will go 10% down with a 580 score (at least they would last week).
    This is only IF you want to proceed with this. You will be stuck with this loan for 2-3 years depending how long your LO slaps the prepayment penalty on (sometimes, the length of time is not negotiable, however, ask and CHECK AROUND).

    The next question is can you manage that mortgage payment, home improvements (trips to home depot, repairs etc), car payment…paying off the collections, student loans… and saving on top of that. You’re going to need to have a few months of mortgage payments socked away in the bank just in case something happens down the road (employment, health…what ever). I don’t want to sound like a bummer–but you do need to be prepared and responsible for your purchase.

    If you’re tapping out all of your savings and using most of your income for the mortgage…you may be setting yourself up for a bad situation in the near future. Especially when there is a prepayment penalty tied to the loan and it’s costing you 6 months interest to get out.

    IMHO you have too many “WHAT IF’S” with your financing.

  38. I’ll just throw this out, not that I necessarily think it’s a good idea. If Chris has a decent DP, wouldn’t he be better off spending that money on credit score improvement?

    At the very least, anyone making $10K/month should have a few friends or family members with good credit that are willing to add him as an authorized user on their credit cards – thus boosting his credit score within a few months.

  39. DP is the Down Payment. If he has $38K cash, he may be able to use some of it to pay for a credit improvement service or convince friends and family to let him borrow their credit lines for a bit.

    From what I understand, the quickest way to improve a credit score is to get added to other people’s (good) credit lines.

  40. It’s a misnomer that “throwing money at the problem” fixes your credit. In fact it can make it worse, or at least the same for a longer period of time.

    Making 10 payments or more on time is better than paying off a poorly rated debt.

  41. Thanks, Ardell. Sometimes I need things s p e l l e d out!

    Bill, yes, Chris can improve his score by having a family member add him as an authorized user on a credit card. However, there is no guarantee it will improve his score enough by closing or before he can safely “bail out” on this transacation.

    A 620 score w/5% down and a jumbo loan with unpaid collections…it’s still tough.

  42. And Ardell makes a strong point in comment 44. Even if Chris qualifies…what happens when the HOA levies an assessment? Or if his employment changes? It does not sound like he has a good back up plan to be stretched this thin.

  43. You’re correct the condo is from a private seller who is also a Realtor. The date of ratification is March 26th. I have not recieved the Resale Certificate yet. In Virginia the contract states that I have

    3 days after contract date if i recieved the certificate on or before signing the contract…

    3 days to cancel if recieved electronically or by delivered by hand with a reciept to the sender…

    or 6 days to cancel after the postmark date if its sent via US mail with a return reciept

    I cant seem the find the date in section 19 stating how long the condo association has to send the certificate.

    With the mid score 581 I will be able to get the deal done but im looking at rates in the 9% range putting 10% down. Im on track to have the full amount for closing on June 5th. The seller is aware that the settlement date could shift into June and does not seem like he cares either way because he has a guy renting the place out month to month.

    Im basically saving every penny of my income. Im a contractor and i get payed 1099 so it helps not having the tax burden while i save but after i close i am gonna spend the second half of the year catching up on my taxes. Im working alot of overtime to cover me now.

    My jeep payment is $691 a month. Which is another story completely. Its at 14.50% percent and im half way through a 60month loan with 3 yrs left this june. I really want to refinance the jeep and get the payment down some where reasonable I owe 26k on it now and the beginning balance was 35k.

    My other debt payments are really low. The mortgage plus all my other debt will put my monthly DTI aroun 55%. I have a roomate that will rent out the other room in the condo with me and help it will take it down to 45% and thats with the terrible rate.

    If my score goes up the numbers look a little better. Im tempted to just pay off the jeep and the rest of my debt and just wait 6 more months but I really like the condo. I will still be able to save around 3k a month after the purchase worst case. As for employment work is pretty solid here in the Beltway but i am worried that if something else happened no one would be able to help me ever make that payment. ive started looking at the tradeline websites and if i had thought of that a few months ago maybe that would have been a good route but now itll take atleast 60 days to see the benefit. down the road its definitely seems like a good option.

    i just feel like the time is now because i really need the tax benefits of owning a home. even if its at a high rate it could be better giving the money back to uncle sam being that i dont have any children, anything to deduct other than my Roth IRA. the tax advantages are huge..

    im going to give the broker a shot he seems very confident. im prepared for the worst case losing my deposit and having to wait longer or losing out on the property. some people will get fired and i plan on getting my money back the next time around representing myself as a Realtor and finding a better less expensive place or one with more concessions. its just now that i have this emotional attachment to the Industrial loft condo i just dont want to let it go 🙂

  44. If you are in Virginia, it is not a NWMLS contract as we talked about before, because you would have to be in the Seattle Area. So forget about the references to your contract.

    If we do nothing else here, we will at least have given you the opportunity to bounce off your fears, and think it all through thoroughly. If you are in Virginia, that’s about the best we CAN do 🙂

  45. If one has a credit score of 673 and a past history of a bankruptcy discharged in 2003, annual income is 74K, down payment would be 5%, mortgage total would be 200,000 max. How eligible would I one be to be approved for this mortgage? What would need to change? I am concerned with the subprime situation going on. What is good, what is bad?

    Second situation is the same circumstances as above but would be a a refinance on an existing $210,000 mortgage instead of a purchase but with no down payment. Name on this mortgage currently is this person and spouse. Spouse’s name would come off and this person would refinance alone. Can this be done? What would need to change? What is good, what is bad?

  46. Rhonda,
    Yes, it is a divorce situation. The house is valued at approx 230,000-240,000 (the market is not very good in Co right now, so it will be the lower end I’m certain). The balance owed is 210,000. I would love to keep my existing home, but fear I will not be approved to be refinanced alone. This situation is in the state of Colorado…not Washington, I’m afraid. I am unfamiliar with AUS and loan limits. What should I be concerned about with regards to AUS? Loan Limits?

    If this refinance is possible, would it be known, in general terms, of what type of interest rate I would be offered? Am I considered subprime?

    Will financing with the second situation be of a greater possiblity to happen or the first situation?
    Thank you

  47. Elizabeth, what I should probably do is refer you to Mortgage Professionals in the Colarado area who are more familiar with the loan limits and property values.

    With a divorce scenario, it would most likely be considered a refinance. You are not necessarily considered subprime. There are “subprime loans” and there are “subprime borrowers”. Your mid score is slightly below the magical mid-score of 680…but that’s only one piece of the puzzle. Your income and assets are other important factors. This is why I’d like to help get you in touch with a Mortgage Professional in your area.

  48. Thank you. I would very much appreciate information on a Mortgage Professional in my area.
    I do have a question regarding your comment “with a divorce scenario, it would most likely be considered a refinance”. If it wasn’t a divorce situation, what other options could be considered? With a divorce situation, what are the options?

    Also, so if my score just went up a bit to 680 by the time I was going to do this refinance or purchase, I would be in a much better credit score situation?

  49. Here’s one referral from Kristal Kraft (she’s a Denver Realtor): Frances Wehner At CTX Mortgage. 1-888-615-5756 toll free 303-589-4694

    If I come across anyone else, I’ll let you know. 🙂

  50. What is the current sub-prime credit score threshold for Washington State?

    This is a divorce situation and we need to refinance and keep the house in my ex-wifes name while removing me from the mortgage. We’re currently on a 40 year mortgage with the first 2 fixed at 7%. Her credit score is around 630.

    The current mortgage is fro 272K and the house appraises around 385k

  51. If she does not have late payments on her credit report for the past year (yes, this can happen with a 630 score) and her DTI is 43%, she may qualify for an FHA mortgage. The rate would be better than 7%, she would have fha monthly mortgage insurance (which is a lower rate than PMI). I’m checking with my subprime resources regarding credit score requirements.

  52. Hi Rhonda,
    I was wondering what the cut-off score is for FHA loans in Pennsylvania? I applied for a 95/5 loan in the beginning of Sept. and received a pre-approval. At the time my FICO was 700. As of yesterday it is 675. I can’t quite understand the change, since I was working hard to raise my score!
    I had three cards with balances.I paid off two of the cards and transferred the balance of the other one to a 0% interest card in July. I now have that one paid down to half of what it was. The only thing that was negative was inquiries. It said something like 20 b/c I signed up with lending tree and also applied with some other companies. So what do you think, is my score still high enough?

  53. Hi Ryan, FHA is not credit score sensitive. Your past credit over the past 12 months (including inquires over the last 90 days) will impact your qualifying for a FHA mortgage.

    This is what dropped your score:
    Transferring balances to a new credit card debt. New debt dings your score over old established debt. Especially if the new card is now maxxed out (or above 50% of the available credit line). If you closed your old accounts, that drops your credit score, too.

    Lendingtree and their shopping around with various lenders causing all of the inquires did you no favors with your scores either.

    With that said, from what you’re telling me, FHA should still be an option for you and your lender will most likely require a letter of explaination regarding the inquires and the new credit card. Your reasons sound very acceptable to me.

    Good luck! Please let us know how it works out.

    • Hi rhoda, are you out of wa.state? If so where at? If are from wa. State or you deal in wa.state to, we are looking or a house to own, a little way’s in the country side, my dad live’s in a 5th wheel trailer and he need’s tofind a place to move to, he could move. to apt., but he like’s to use his table saw and he couldent do that in apt., so we figure out it would be better to try to find a house, to ware there would be like a guess house or extra big studio room or some thing, or what about a house with another kitchen in it , a bath room. Thank you, sandy

  54. Hello Rhonda and Ardell, I have a few questions and comments regarding my current real estate woes. I read through all of the postings in this blog and find myself in quite similar circumstances as some of the other posters. Before I get on my milk box and start blabbing about my problems and requesting your advices I’ll wait to see if there is a response to this post as it looks like it’s been 4 months since the last. I’m a former Olympia resident that now lives in New England. I look forward to speaking with you later.

    Dustin – DAK

  55. I caught it too, though it doesn’t email me when it’s Rhonda’s post. I have an Open House this afternoon, but I’ll check before I leave and when I return for your question Dustin G.

  56. Hi im writing this in desperate need of help or advice, i will be fortunate for either , well I have been seeking a loan , rather a personal loan to bring all of my bills into one monthly payment but a lower payment, i want to use the loan to pay off my credit cards debt and the balance owed on my vehicle , i owe 16,500 on my vehicle and about 10,000 in credit card debt. I have gotten myself in a bind by trying to help other people and do everything to make other peoples lives better , and now im in a bad situation with no one to call on. What i mean by helping others is , i used my credit card to make christmas for a few families , because they had nothing , no gifts , no food , barely each other , no money , and their bills wasnt paid , so i felt that God spoke to my heart to do these things and I did them. My husband has a given heart as well , and found ourselves buying groceries for different family homes 2 and 3 months straight spending hundreds of dollars while we settled for a few bags of grocery for ourselves.I recently started a business from home but had to stop due to the fact i have no money to invest in it, , i receive child support of about 800 per month and my husband is disabled and receives 600 per month , well with rent being 550 , truck payment 500 , insurance, light bill , waterbill ,phone bill, gas , and grocery, credit card payment , im now in the hole , i never seen myself in this postion, i wanna know can someone give me info on a guaranteed loan , or assist me with a personal loan , i have the funds to pay the monthly payment on the loan , i just dont want to make 5 and 6 different payments per month , i just want to pay thehigh debt off and make one monthly payment, so that i can have christmas for my kids, We always gathered around every year and opened gifts , but this year i know i have to explain to them that there wont be nothing at all , but the gift of life and us being together will have to do this year and i know two little kids wont understand that , maybe my 10 year old , but not my smaller one , i m not in a pity party , and i only cry when im not around them , im trying to be strong , but i have ran out of options, i have been applying for jobs on top of jobs , to work from home , because as i said my husband is disabled and need 24 hour assistance , so im doing my best , but sometimes your best just isnt good enough , can someone please give me some advice or lend a helping hand. I am reliable and responsible and will definately pay all of my debts in a timely fashion/ Thanks in advance and God bless u

  57. Mrs D, I suggest you contact your church and other charitable organizations such as the Good Will or Salvation Army. You may want to check with your local authorities since your husband is disabled to see if you qualify for any type of aid. Good luck.

  58. Advice requested.

    My husband and I are desparetly in need of advice on attempting to purchase our first home. I know that at this time, it is not good for people with poor credit. Both of our credit scores are 581. We both have student loans that had gone into collections because of not having good jobs to afford to pay on the loans. Then they attached a wage garnishment in attempt to retain the money. At that time I was naive well since they are getting their money then we are paying on them and that this would appear ok on our credit. We are both now doing the loan rehab program to get us back on track with showing that we can pay the monthly payments on a timely fashion, which we have been doing. We have had decent jobs for 5 years, only have one credit card and a car payment plus the student loan payments. I just get frustrated because I see people get approved for home loans with hardly any income or government funding of some sort and we have attempted to better educate ourselves. I feel that we are penalized for going to college. We have been faithful renters to the same home for 5 years and not late on bills but can’t seem to get ahead with this student loan debt. Where do I start in order to be a home owner?

  59. Heather,

    The good news is that is sounds like you’re on the right track–however you may have some more work to do before you’re really in a position to buy a home.

    FHA loans are available for credit scores around 580 however the rates are much higher. You will benefit greatly by getting your mid scores up to at least 600 and even more by reaching 620.

    Also, with FHA you’re now required to have at least 3.5% of the sales price for down payment (which can be gifted from a family member) and you should plan on having at least 4 months of reserves (your future mortgage payment) in a savings account. (I don’t see if you mentioned savings in your comment–but because of this post, I’m assuming you’re searching for low to zero down).

    HUD does offer counseling:

    I think it’s much better off to postpone buying and making sure you’re in the right position than to rush in because it seems like others in similar or worse positions are doing it.

  60. Hi, there, how can I get my credit score, if I can’t even get it, to see if we can quailfy for a home loan, I would like to know where I stand, I don’t know what my husband’s is either. I have been getting the run around, with all 3 place’s for your score, they don’t make it easy . It would be nice to know this info., right now we are living in a townhome, we have three cat’s & one puppy,for now, she’ll be a 1yr,old in june. We have been married since 98, of aug., we have not had are own place yet, every place, tell’s thing’s, they can’t help us out, or go to another place, or some thing else.., now we look at it differently, as long as your are up on rent, and other bill’s and have a great rental history,it should not have any probem’s.. the score can not buy any thing, it sit’s on a paper or a computer, just to get looked at. If you are working that should be good enough. There are a lot of place’s, that if you are working that it is your credit. We are running out of time, befor it all stop’s, on this earth. Thank you, sandy & ed.

    • Hi Sandy and Ed,
      Any local mortgage professional should be more than happy to provide you with a copy of your credit report. The cost should be around $25 for one that will show all three scores. I recommend this over obtaining them on line if you are seriously interested in getting a mortgage for a couple reasons:

      1) the scoring is done differently for different types of industries. Typically what you can obtain online is going to have a higher score than what a mortgage originator will pull and have to use.

      2) in the event you need some elbow grease with your credit history, the mortgage professional should be able to help provide some guidance for you.

      Before you allow the mortgage originator to pull your credit–do see if the will provide advice and work with you if needed on your credit.

      Lenders will want to see that you have paid your rent on time for 1-2 years and that your have 3-5 established accounts (approx. 2 years or older) with no recent late payments.

      Your score is actually getting more and more important every day so it doesn’t hurt to get your credit report reviewed.

      Good luck!

Leave a Reply