Home Loan Credit Thaw Comes With Better Jobs Report

by Shelton on May 30th, 2014

filed under Credit Scores

McClatchy-Tribune Information Services

May 04–Prospective homebuyers still have plenty of hoops to jump to through to get a loan, but as little as 3.5 percent down with a credit score of 580 soon will be acceptable locally soon for Federal Housing Administration-backed loans.

The 580 credit score with 3.5 percent down has been an FHA-backed loan minimum, but most banks have stuck to 620 or even 680 credit scores as a precaution in these days of Great Recession recovery.

Citizens Bank and Trust in Van Buren, however, recently received notice from a secondary lending overlay group that it plans to drop its minimum credit score for an FHA-backed loan from 620 to 580, with 3.5 percent down, according to Citizens Bank Mortgage Loan Manager and Vice President

Alan DeFrees.

The Wall Street Journal recently reported on the credit thaw, saying that while standards remain tight by historical measures, lenders are accepting lower credit scores and reducing down-payment requirements.

Scores on purchase mortgages stood at 755 in March, down from 761 a year earlier, according to mortgage-software provider from

Ellie Mae. Those on purchase loans backed by the FHA dropped to 684, compared with 696 one year earlier.

Average credit scores on purchase loans closed through a consortium called LendingTree fell to 679 in March, down from the year-earlier 715.

Traci Wilhelm, mortgage loan originator with United Federal Credit Union in Fort Smith, said Friday that about 40 percent of their loans in a four-state region are made up of Veterans Affairs and FHA-backed loans for homes that range in price from $110,000 to $150,000. The region includes Arkansas, Oklahoma, Texas and Missouri.

Home ownership is widely viewed as a stabilizing factor in society. Much of this, however, is predicated on job security. As the job market picks up, which it appears to be doing, so may home ownership. The Labor Department jobs report for April released Friday showed that milder weather helped employers add 288,000 jobs. It was the most in more than two years.

The unemployment rate also fell to 6.3 percent from 6.7 percent, the lowest since September 2008. The decline came because the labor force, which includes those working and looking for jobs, shrank by 806,000.

Owning is what strengthens neighborhoods, said SWBC Mortgage Branch Manager

Rose Catalano. Its good when you are having a percentage of the population owning their home because they have responsibility to their town and their city to improve it. Theyve made that commitment. Renters can pick up and leave any time.

Catalano said FHA loans, although they may require a mortgage insurance premium (MIP) are still favorites of first-time homebuyers.

The annual mortgage insurance on an FHA loan is 1.35 percent of the loan amount, divided by 12. The monthly insurance on $100,000 home loan would be about $113. An up-front 1.75 percent loan insurance is also needed for the risk of default. That sum is usually financed onto the monthly mortgage payment.

At least with Catalano, more young professionals coming out of college are showing more interest in buying a home. And this impresses her. According to Bankrate.com, borrowers can use their own savings to make a home down payment. But other allowed sources of cash include a gift from a family member, or a grant from a state or local government down payment assistance program.

Maria Lau, senior vice president of mortgage lending at Arvest Bank in Fort Smith, noted in a recent Times Record report that within the past three weeks the housing purchase market has picked back up after a slow winter. Arvest still caries the 620 credit score minimum for FHA-backed loans and retains servicing on its loans, Lau adds.

If you have a credit score below a 660, you would not be able to finance 95 percent, Lau says. Typically, your credit score and your down-payment availability would help a loan officer determine what type of loan you need to be in.

Credit scores have always been important, but even more so after the mortgage meltdown in 2008 with the Dodd-Frank Act and bank reform. A potential homebuyers DTI, or debt-to-income ratio, is also a deciding factor, possibly more than the credit score.

Lau says the Consumer Protection Finance Bureau watches banks and the mortgage closely to protect consumers from banks taking advantage of them. In reality, though, these regulations are possibly hurting the consumer.

It becomes very frustrating, Lau said, when someone has to wait three days to close because a reduced fee caused his or her Annual Percentage Rate to go down. The annual rate that is charged for borrowing, expressed as a single percentage number that represents the actual yearly cost of funds over the term of a loan. This includes any fees or additional costs associated with the transaction.

If the APR goes up or down .125 percent, you have to re-disclose and wait to close, Lau said. How does that help a family who is trying to get into a home?

For a limited time, according to the Arvest website, Arvest is running a deal to discount mortgage closing costs by $500.

Mortgage buyer Freddie Mac said Thursday the average rate for the 30-year loan eased to 4.29 percent from 4.33 percent last week. The average for the 15-year mortgage slipped down to 3.38 percent from 3.39 percent.

Mortgage rates have risen almost a full percentage point since hitting record lows about a year ago.

According to FHA.gov, the department of the Housing and Urban Development Office is the largest insurer of mortgages in the world with over 34 million properties since its inception in 1934. It is also the only government agency that operates entirely from its self-generated income. The proceeds from the mortgage insurance paid by the homeowners are captured in an account that is used to operate the program.

FHA mortgage insurance is not permanent. It can either go away on its own, or can be refinanced away. For homeowners whose FHA mortgage pre-dates June 3, 2013, MIP goes away when certain conditions are met. For both the 15- and 30-year loan term the annual MIP is canceled once the loan reaches 78 percent of the loan-to-value and annual MIP has been paid for at least 60 months.

To qualify for a conventional mortgage, a borrower generally needs a minimum credit score of 680 and at least 5 percent down. Many lenders require at least 10 percent down.

The National Association of Realtors and the Mortgage Bankers Association said last week it is asking the FHA to lower the annual premiums tacked onto monthly mortgage payments. The agency has raised the fees five times since 2010, from 0.55 percent of the loans value to 1.35 percent.


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