The burst of the housing “bubble” has caused many a change in the housing and mortgage market. Many of the first time buyers are now skeptical about their chances of getting a home loan in this depressed economy, even though they possess good credit scores. Here’s what one such first time buyer has described about his situation and asked the community whether he stands a chance to qualify for a mortgage:
The poster says the 3 credit bureaus list his credit scores as 682, 686 and 639. He has worked hard to improve his credit, which now has 2 derogatory items listed. One of them is a collection since 6/04, while the other is a charge-off on an auto loan since 8/06. The poster has an income of $25,500/year. He asks the following queries:
1.Do I have a chance to qualify for a loan?
2.What interest rate can I expect on the loan?
3.Which is the best bank to get my loan from?
4.Do I qualify for any first time buyer program that does not require a down payment
The poster does have a chance to qualify for a home loan. His credit scores are good enough to help him meet the lender-specified credit requirements for a mortgage. However, the only problems with his credit are the 2 derogatory items – the charge-off and the collection. No lender would want to get him approved for a loan until the two negative items are removed from the credit report.
How do you remove negative items from credit?
The poster owes a total of $19k on the collection and the charge-off. So, does this mean he cannot qualify for a loan unless he comes up with $19k cash? Not necessarily. If he does not have the cash to pay off the debts, he can try and set up a repayment plan to pay off the negative items. He can pay off the debts through monthly payments. But if he sets up a repayment plan to pay off those 2 items today, will he be able to get a loan tomorrow? Well, the answer would be “no”. The lender would want to check if he has lived up to the terms of the repayment agreement.
The poster will have to make payments as per the repayment agreement and pay off the items before applying for a new loan. But that little wait could be well worth it as he will get the chance to improve his credit further by keeping his repayment commitments. He can also take help from a good debt settlement company, which can help him settle the debt for much less than what he actually owes. Through the settlement, he can also have the collection and the charged off accounts reported to the bureaus as “Paid as agreed” and reduce their negative impact on his credit.
What interest rate can you expect?
The interest rate on the mortgage depends on a lot of factors. It is difficult to say what kind of rates our poster can expect on the loan. The mortgage interest rates, especially those offered on FHA loans, are quite low these days. His credit scores are already good and if he keeps paying off the negative items through repayment plans, the scores will get better. With a better credit score, he can be assured of a better interest rate.
Which bank should you choose for the loan?
It is also difficult to suggest a ‘best’ bank for our poster. Every bank would claim they are the best. But one needs to do some thorough research before choosing a bank to get a loan. A good mortgage broker could be of much help to a first time buyer in this situation, as he can represent the buyer in the best possible manner and help choose a bank and a mortgage product that is best suited for the particular situation.
Can you get a loan with no down payment?
No-down payment loan programs have ceased to exist. A buyer now has to come up with some cash out of his own pocket to put down money upfront. The FHA has the minimum down payment requirement of 3.5%. Most other types of loan require at least 10-20% of down payment. But with VA and USDA loans, one can purchase home without putting down anything.
However, to qualify for a VA or a USDA loans, our poster either has to be a veteran or has to live in a rural area. He also has to pay off the collection and charge-offs to qualify for these types of loans. Apart from VA and USDA loans, there are first time home buyer programs offered by various state housing agencies that might not require the borrower to put down anything. But qualification requirements will vary from state to state and most of these programs now require at least 3.5% down payment, which coincides with FHA requirements.
To view the discussion on this topic, please refer to the following page:
http://www.mortgagefit.com/firsttimebuyer/loan-credit-downpayment.html