What kind of home buyers do you typically work with? Do they have good credit, poor credit or something in between? If you’re limiting yourself to only offering loan products that cater to good or excellent credit qualifications, you may be missing out on the chance to expand your business – not to mention the chance to help someone achieve their dream of owning a home.
There are a fair number of loan options available in today’s marketplace that are accessible to borrowers with less-than-perfect credit histories. If you’re new to the industry, you may even be surprised to find out that some of your current offerings will allow lower FICO scores. So, if you’re offering FHA loans to your borrowers, you’re already offering a low credit mortgage option. The question now is, are you marketing it that way?
Talk to your borrowers with low credit scores about FHA financing. Explain the benefits of the program, such as…
- Low money down option
- Low interest rates (sometimes lower than interest rates for conventional mortgages*)
- Streamline refinancing available
- Typically lower credit score requirements than those for conventional mortgages (which may require FICO scores between 620-640)
- Allows sellers to pay up to 6% of the loan amount to cover buyers’ closing costs (conventional loans allow up to 3%)
*APR may be higher for FHA loan than conventional loan. Compare rates/terms with your borrower to determine the best value.
VA & USDA Loans
In addition to FHA loans, there are also VA mortgages and USDA loans that typically allow lower credit scores. The United States Department of Veterans Affairs (VA) does not have a set credit score minimum. Instead, the agency requires applicants to be considered a “satisfactory credit risk.” As this is quite a broad term, most VA lenders use credit score benchmarks, with minimums varying from lender to lender. In today’s marketplace, VA lenders typically like to see credit scores of at least 620. For USDA loans, the minimum credit score is 640. Before December 1, 2014, the USDA did not have a set minimum score and instead lenders set their own minimums, similar to the way the VA program works. Now, lenders who offer the program adhere to the universal minimum; however, for borrowers who lack a credit history, lenders may be able to accept alternate sources for establishing credit. Here are a few examples:
- Records of rental history (canceled checks or letter from property management company)
- Records of medical bills being paid regularly and on time
- Records of utilities (power, water, cable, phone, etc) paid regularly and on time
- Records of auto, life or health insurance bills paid regularly and on time
Freddie Mac Home Possible & Home Possible Advantage
AFR Wholesale also offers Freddie Mac Home Possible and Home Possible Advantage – two programs that are designed to meet the needs of low and moderate income borrowers by providing financing between 95% and 97%.* With these programs, you may be able to reach borrowers who are in lower income brackets but are still proven to be creditworthy and financially responsible. Borrowers with scores as low as 620 may qualify for these programs.**
*105% maximum total LTV (TLTV) ratio limits
**680 minimum qualifying credit score for all qualifying borrowers if Lender Purchased Mortgage Insurance.
Fannie Mae HomeReady
We also offer the Fannie Mae HomeReady Mortgage, featuring flexible underwriting to help borrowers who are in designated low-income, minority and disaster-impacted communities. For this program, a minimum FICO score of 620 is required for all qualifying borrowers*
*680 minimum qualifying credit score for all qualifying borrowers if Lender Purchased Mortgage Insurance.
The Bottom Line
Lower credit scores do not necessarily reflect a lack of creditworthiness. In our industry, there are opportunities that may be overlooked if you don’t find ways to market your lower credit loan products and reach borrowers who may now be aware of the home buying opportunities available to them.
Photography by [designer491] © shutterstock.com
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