A Low Credit Score Is Not A Showstopper

February 10, 2017
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For most mortgage borrowers, their credit score will likely have an impact on the type of loan they can get, as well as how good of a rate they qualify for. Although having a higher credit score can certainly put borrowers in a better position when getting a conventional mortgage, less than perfect credit may not prevent you from advantage for certain types of home loans.

Products We Offer
At AFR Wholesale, we offer a variety of mortgage options for borrowers who don’t have strong credit. These include government loans like FHA, VA and USDA, along with Fannie Mae and Freddie Mac offerings like the Home Possible Advantage SM and HomeReady ™ programs.

Here’s a quick breakdown of our government programs and how they can help lower credit borrowers:

FHA

  • Borrowers who have lower credit scores and not much cash for a down payment may find it easier to qualify for an FHA loan than a conventional loan.
  • Minimum FICO score of 580 (3.5% down payment).
  • Borrowers with scores below 580 may still qualify with 10% down payment.
  • Backed by the Federal Housing Administration (FHA).
  • Only FHA-approved lenders can offer these loans.
  • Allow seller-paid closing costs up to 6% of the loan.
  • Streamline refinancing options available.
  • Two mortgage insurance premiums required: upfront mortgage insurance premium (UMIP) and annual mortgage insurance premium (AMIP).
  • One-Time Close Construction Loan option available for new construction homes.
  • $100 Down Option available.
  • Several more FHA sub-programs available. See FHA programs overview here.

 

VA

  • Eligible military/veteran borrowers with less-than-perfect credit scores and no money to use toward a down payment may find it easier to qualify for a VA loan than a conventional loan.
  • No set minimum credit score; instead, most lenders use credit benchmarks of 620.
  • 100% financing available ($0 money down).
  • One-time VA funding fee required.
  • No private mortgage insurance (PMI) required.
  • Available mainly to eligible veterans, active duty military and surviving spouses of veterans.
  • Interest Rate Reduction Refinance (IRRRL) option available.
  • One-Time Close Construction Loan option available for new construction homes.
  • See program matrix here.

 

USDA

  • Borrowers with less-than-perfect credit scores, low to moderate income and no money to use as a down payment may find it easier to qualify for a USDA mortgage than a conventional mortgage.
  • Available to home buyers who are purchasing a home located in a USDA-approved rural area.
  • Minimum credit score of 640 needed to qualify.
  • Streamlined-Assist Refinance option available.
  • See program matrix here.

Fannie Mae and Freddie Mac also have options for lower credit borrowers.

 

Fannie Mae HomeReady ™

  • Designed to help borrowers in low-income, minority, and disaster-impacted communities obtain affordable home financing.
  • 620 minimum qualifying credit score for all qualifying borrowers; 680 minimum qualifying credit score for all qualifying borrowers if Lender Purchased Insurance
  • 95.01-97% LTVs
  • See program matrix here.

 

Freddie Mac Home Possible ® and Home Possible Advantage SM

  • 620 minimum qualifying credit score for all qualifying borrowers; 680 minimum qualifying credit score for all qualifying borrowers if Lender Purchased Mortgage Insurance.
  • Designed to help borrowers with low to moderate incomes and less-than-perfect credit scores obtain home financing with low money down.
  • See program matrix here.

 

Ways to Improve Credit Scores
Even with a selection of low credit mortgage options, there will always be some hopeful home buyers who fall below the minimum. Rather than bursting their bubble and moving on to borrowers with higher scores, take the time to learn about their situation and offer helpful suggestions on how they might improve their credit. After all, a large part of this business is fostering relationships. Just because a borrower isn’t credit-ready now, doesn’t mean they won’t be in a year or two. And if you take the time to help them now, chances are good they will return to you when they are ready to secure financing.

Here are a few suggestions you could offer your hopeful credit-challenged borrowers to help them improve their standing:

  • Improving credit is often compared to losing weight – there’s no one simple “quick fix.” It takes patience, consistency and time. Be wary of anyone advertising a “quick” or “easy” way to increase your credit score, as these methods tend to backfire.
  • Try to maintain low balances on your credit cards and other revolving credit. If paying off your balances completely is not possible, for now just try to pay them down and keep them as low as possible. Even if you only make the minimum payments for the time being, the key is to just be consistent. And whenever possible, make more than the minimum payment to prevent having to pay high interest costs.
  • Consider consolidating your debt. Debt consolidation is a term used to describe the process of combining all of your smaller debts into one large debt (that ideally carries a lower interest rate). For example, if you have three credit cards, all with interest rates over 20%, you may be able to consolidate your debt by transferring those three balances to a different credit card that has a lower rate. Or, if you have a mortgage, you may be able to use cash out refinancing to pay off your debts. The interest rate on your mortgage is almost certainly going to be lower than the rates on your credit cards.
  • Check your credit report. Don’t just look at your score. You can request a copy of your credit report once per year from each of the three major credit bureaus: TransUnion*, Experian and Equifax*. Probably the easiest way to access all three of your free credit reports is to go to annualcreditreport.com, which will pull your reports from all three bureaus.

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