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A few weeks ago, one of the Realtors I work with, Suzy Seller, contacted me to see if I could help her client with an out-of-state mortgage. Ima Rusty (names are changed to protect the innocent), was moving to Arizona to retire and perhaps see the sun. Ima had gone to her “local bank mortgage company
Two years ago, our company switched our loan operating system to Encompass, so I have data available for the past two years (closed transactions from March 2005 – March 2007). I’m pretty surprised at the results after analyzing my purchase transactions and so thought I would share this with you.
Mid Credit Scores
3% had credit scores between 600-619
17% had credit scores between 620-679
25% had credit scores between 680-719
47% had credit scores between 720-799
8% had credit scores above 800
25 % of clients purchased with 100% LTV Financing (80/20 or 100% LPMI)
Average zero down mid credit score = 723
7% FHA Financing
39% had 20% or more for down payment.
The most popular loan programs for my clients:
So what do I make of this? The consumers with scores under 620 will have a much tougher time, if they’re able to purchase at all. Especially without a down payment of 5% or better. Depending on credit history (1-2 years of no late payments), they may be able to go FHA or VA for financing. The 3% (credit scores of 600 – 619) of my clients who I helped with financing over the past two years, would probably need to go back to drawing board and work on their improving credit scores (and, more importantly, work on changing their credit/spending habits) before being able to obtain financing for a home. With that said, out of the 3% who were able to buy, I’m only worried about two buyers who may not have followed my advice of working on their credit and revamping their budget (and one of them has a 5 year fixed period ARM).
The 17% (credit scores between 620-679) would probably fit into FHA financing. Over the past two years, most of my clients would opt for 80/20 or 100% (LPMI) financing over FHA for the following reasons:
This information is just a reflection of my purchase business from March of 2005 to my closed transactions as of today. Historically, I have served more south King County families. Just over the past year, with my move to Seattle, my business is beginning to expand to Seattle and Bellevue areas.
Before reviewing this data, I was certain that a larger percentage of my business was zero down or subprime. Now I can see that I’ve done many zero down/subprime “prequalications or preapprovals” and they just didn’t pan out…but the effort that goes into a preapproval almost feels like you completed a transaction…especially for a subprime buyer.
Again, I don’t represent every lender…just little ol’ me! 😉
This is a two part (well so far I’m planning a second post…their could be more) series of a couple of clients (names changed to protect identities, of course!) who have purchased homes utilizing 100% financing. Both parties utilized similar programs but they wound up in entirely different situations.
Mr. and Mrs. Spender eagerly wanted to purchase a home. They were tired of renting and had two kids with one on the way. They didn’t have a lot of money in savings and their credit had a troubled past (some of it was medical and some was plain irresponsible). They live paycheck to paycheck but they are anticipating receiving raises and bonuses from their employer. Their credit report shows that they rely on their credit cards and you can see on their bank statements that they dine out a lot and spend their money on frivolous extras.
Based on their credit scores, I was able to provide them with an 80/20 from a sub-prime lender who does not verify where their funds are coming from for closing and would allow for the seller to pay up to 6% of the closing costs. I structured their preapproval with the seller paying all the closing costs. In fact, at funding Mr. and Mrs. Spender receive a check back for a majority of their earnest money.
Not long after closing, the Spenders discover that the gas heater in their home was defective (apparently this was missed on the home inspection?). It just so happened that the repair company they called to repair it had previously serviced it and informed the previous owners that it needed to be replaced. Mr. and Mrs. Spender decided to take their Seller to Small Claims Court and their Agent attended with them. I had asked them what the results were, here is their edited response:
“Yes we took them to court and even though we had all the documents showing that the (sellers) knew the furnace needed to be replaced and needed to be fixed the judge did not find that we had proved our case… so we got nothing.. (the Real Estate Agent) came with us and she was just as shocked… She too was amazed that all the paperwork we sign to protect us from buying a home with flaws, the (Sellers) even stated and had to initial that there was no problems with the heating system and even though we had documentation to show that they knew there were problems and didn’t disclose it… we got screwed to be honest…. They knew.. They didn’t care… and the judge just wanted to get out of there… It was a joke…
[photopress:cancelled.jpg,thumb,alignright]My client and I reviewed the Resale Certificate and cancelled his purchase today.
When you buy a condo, or condo-townhome, you do not know everything there is to know before you make an offer.
After you are in escrow, after the contract is “signed around”, you get a resale certificate within ten days. I’m not talking about new properties here, but resale properties. It’s amazing how many agents just hand that big packet over to the buyer and then hope and pray for five days that the buyer won’t open it.
Sit down with your agent and go through that resale certificate. Don’t rely on verbal representations made prior to receiving the resale certificate. I was told by the listing agent that the Association had money in reserves. She volunteered that information, as I would never expect an agent to know that. The Resale Certificate comes and it says ZERO in reserves.
How could anyone have a balance of Zero anyway? Did you ever have a Zero Balance in your bank account? It’s either $2.00 or it’s overdrawn…but flat out ZERO?! Is that even possible? Oh and the “Good News” is that the monthly HOA dues were being decreased beginning 1/1/07. No reserves, so let’s reduce the monthy dues…that’s ripe!
Maybe the lawyers can answer this one. I haven’t seen the Reserve Study Summary in many of these packets and have to hunt it down. It really is not possible to know if the monthly dues are adequate, or if the amount in reserves are adequate, without having a copy of the Reserve Study Summary page. Is that not required here in Washington? If not, someone needs to fix that. How do I help make it mandatory that this vital info be included with/in the Resale Certificate? Who do I call? Who do I write?
Well luckily, in this case, I didn’t need to look at the Reserve Study to know that ZERO wasn’t good enough. The agent kept telling me how much BETTER things were NOW than they USED TO BE. That may in fact be true. But better than it used to be is not necessarily, good enough.