Sunday, September 29, 2013

What is more important? Credit Score or Down Payment?

So, is your credit score more important or the size of your down payment when it comes to getting a mortgage on a house?  

Let's take a look. You down payment determines your Loan to Value ratio.  Your LTV and credit score are primary factors in determining your mortgage qualification and the rate your will receive.

To demonstrate how Loan To Value and credit score impact APR, consider these three buyer profile scenarios.
  • Jenny has managed to save up a sizable down payment of 30% on her dream home, but she has always paid for everything in cash and has no credit history so her credit score is only 635.  
  • Amy has a good credit score at 745, but she only has enough for a 5% down payment.  
  • John also has a credit score of 745 but has saved enough to put 20% down. 

Despite their very different profiles, Jenny and Amy would get nearly the same APR (4.98%) on their mortgage, indicating they pose equal risk to the mortgage underwriters. John, however, would get the best rate, nearly 60 basis points lower at 4.41%.
Assuming they have all have $1,000 per month for their monthly mortgage payment, Jenny would be able afford a house of $265,000; John a house of $250,000; and Amy a house of $195,000.

Want to see what your specific situation qualifies for? Contact Paul Johnston today!

Already qualified and ready to buy?  I'm here for ya' as always!

Friday, September 20, 2013

New Program for Home Buyers with Checkered Credit

 Commonly, people who people who experienced a “Negative Credit Event” like a short sale, foreclosure or bankruptcy would have experienced an extended delay of anywhere between two and seven years before they could purchase a home. But now there is a new program called “The Back to Work Extenuating Circumstances Program,” that is designed to allow these people that were impacted during the housing crisis to purchase a home!  Through this program, they have an opportunity to qualify to buy within as little as 12 months. The program is going to remain in effect for any applications that have a case number through September of 2016.

Getting back to the “Back to Work Extenuating Circumstances Program,” what are the standards that would allow someone to qualify for it?

In order to be eligible for this program, applicants are going to need to prove four things.
  1. First, they need to prove that they’re income declined by 20 percent or more for a six month period and that those circumstances were the result of a negative credit event.
  2. Second, they’ll need to be able to provide documentation if the negative credit event qualifies under the “Job lost beyond applicant’s control” category. This might include publicly available information on a reduction in workforce or that a company closed. Applicants can also look to see if they had unemployment compensation.
  3. Next, they have to prove that, over the course of the last twelve months, they haven’t had any credit hiccups like a late installment or any new collections or judgments. They also have to have a clean credit record for the last 12 months. So, they’ll need to show that they have had a positive rental history or that if they’re living with their parents they haven’t had any other credit issues.
  4. The last criteria is that applicants will have to go through Housing Counseling with an approved counselor no later than six months from the application date and no sooner than 30 days from the application date.
Here is the August 15th, 2013 letter from U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT:

Want to find out if you qualify?  Contact Curt Smith!