By Robert G. Yetman, Jr. Editor At Large
Years ago, all was sunshine and roses in the world of real estate and mortgage financing; values of homes were in the midst of a steady rise, and it seemed as though the trend would last forever. It didn’t, of course, but few conceived of the degree to which it would all unravel. The lasting effects of the global economic collapse of 2008, wherein real estate led much of the way, have included a distinct difficulty on the part of borrowers with less-than-great credit to secure their piece of what’s been long-considered the truest representation of the American Dream. This said, the virtual freeze on prospective borrowers with middle-ground credit seems to be thawing a bit, and it’s once again the case that people with credit scores as low as 600 may be able to land a mortgage from a key, mainstream source, rather than only from niche lenders specializing in subprime candidates.
While Fannie Mae and Freddie Mac have kept minimum their minimum score requirements at 620, the Federal Housing Administration (FHA) can get the deal done…subject to the satisfaction of other criteria, of course…at a score as low as 600. We’re not quite back to the days of 100% financing for people with scores as low as 580 (and, frankly, we should hope those days are permanently in the past, now that it’s evident how calamitous that kind of lending can be), but the ability for someone to buy a home now with a 600 score and only 3.5 percent down…a standard FHA requirement…presents prospective buyers with an opportunity far greater than many thought we’d see so soon after all went bad years ago.
As alluded to earlier, there’s more to securing the deal than having at least a 600 score and the money to cover the 3.5 percent down; one’s debt-to-income ratio…the percentage of monthly income that’s paid out to cover all recurring, monthly loan obligations, including that of the prospective mortgage payment…cannot exceed 43 percent. Additionally, expect the rate on a mortgage obtained with a 600 score to be at least a half-point higher than what others are getting. Nevertheless, all things considered, it’s clear that borrowers with a problematic repayment history are making their way back into the good graces of the mainstream lending establishment, so if you’re someone who’s been locked out of the real estate market because of tough times, your fortunes may, finally, be improving.