FHA Minimum Credit Scores

I've been getting a lot of questions regarding the minimum credit score for an FHA mortgage. I know, Larry Lender says the minimum score is 620, but Barbara Banker says she'll go down in the basement to a 500 credit score. Of course, you don't know who to believe because everybody seems to be full of manure. That being said, here's my take on it...

Many lenders are now requiring a minimum score of 620 to get an FHA mortgage approved. Some are saying 620, no exceptions, otherwise we won't play ball. Others are saying we'll go down to 500, but only for certain kinds of properties and only under certain conditions. Well, to make your life as simple as possible and reduce those ogeda flare-ups (or is it agita...who cares), do what you gotta do to raise your score above 620. But, if there's no hope to raise your credit score from the ashes in a short time period, here's what I've come to find out. If you're below 620, don't even think about getting approved for a 3- or 4-family FHA mortgage. As far as I can see, it ain't happenin'. I'm not saying it's impossible, but it's highly risky for a lender to approve it. Someone told me the default rate for 3- and 4-families is about 30%? Ouch! Would you loan someone money with a default rate that high? I think not.

Right now there are lenders who will go as low as a 540 credit score if the property is a 1- or 2-family. There aren't many which will do it, but some do exist. I know one lender which touts the credit score doesn't matter for a 1-family, as long as the deal makes sense. That means all of the other numbers and factors have to jibe regarding the deal, such as income, debt ratio, assets, extenuating circumstances, etcetera. Then you’d probably have to jump through multitudinous hula hoops, do back-backflips and give up your first born to get it approved, but so be it. So, what's the sense of it all?

Depending on how a lender does business -- meaning whether it's approved to underwrite FHA deals or whether it brokers the deals -- that may be the deciding factor regarding the lender you're dealing with. If your mortgage company is underwriting the loan and lending its own money, odds are 620 will be the minimum score. If the deal is brokered to an outside lender, then the minimum credit score requirement can dip down to 500 or below. When you go to Larry Lender and he brokers the deal, Larry isn’t lending his own money so he doesn’t care about credit score, debt ratio, etcetera – his money ain’t risk so it doesn’t matter to him.

Another factor is how your lender sells loans it underwrites to investors. Some lenders may have outlets to sell mortgages to investors with a credit score below 620, while others may not. Normally, if a mortgage can't be sold and/or traded like a baseball card, it won't be approved. Most lenders don't hold onto mortgages and sell them to Wall Street or whoever else will buy them. Also, if a lender holds onto your mortgage and doesn’t plan on selling it, it may make certain exceptions to get your loan approved.

Anyway, the real deal is that if someone says you can't get an FHA mortgage with a credit score below 620, that ain't reality on my side of the tracks. It can be done under certain conditions. You may have to put on your walking shoes and shop around, but sometimes it's worth it.

Copyright by Kirk Charles, 2009. Please do not reprint or redistribute without written consent of Kirk Charles.

$8,000 Home Buyer Tax Credit

Well, the President is starting out on the right foot with the $8,000 tax credit for first time home buyers. I've been getting a lot of questions about it and I gave him a buzz to get the inside scoop, but he hasn't called me back yet. I'm not holding my breath, so in the mean time I'll tell you what I know and how it will benefit you...

1. The tax credit applies to homes purchased between January 1, 2009 through December 1, 2009.
2. The tax credit is 10% of the purchase price of the home up to a maximum of $8,000.
3. For single taxpayers you can get the credit up to $75,000 of income; for couples the income limit is $150,000. Over those amounts and it phases out.
4. First time home buyers are eligible, as well as those who have not owned a home in the last three years.
5. The home you purchase must be your principal residence.
6. And the big biggy...the credit does not have to be repaid.

The 101 explanation of the plan is if you buy a home this year and you owe $20,000 in taxes, just deduct $8,000 from it and you now owe $12,000 in taxes. That ain't too bad. And, unlike the Dubya plan a few years ago, you don't have to pay the $8,000 back (which never made sense to me). That ain't too bad either.

So, here's what we have...low interest rates, low housing values and an $8,000 gift! Is there anything else to ask for? Well, of course there is, but don't be greedy! There's even talk that in certain parts of the country it's becoming cheaper to own than to rent. I don't think that applies to Joisey or New York, but you know what I mean. The time may be ripe to purchase a home...and I'm not saying that because I'm in the mortgage business. Many people are waiting for the market to bottom out before seizing the opportunity. I hope it has bottomed out, because if I lose any more equity in my home I'm going to choke somebody (maybe one of those AIG execs who won't give his bonus back!).

The real deal nowadays is to make sure you have the income to handle the home. It's all about debt to income ratio. If you can't afford a home it doesn't matter if the economic factors are in your favor or not...it just ain't happenin'.

On another note I have disbanded my website temporarily and I'm working on a MySpace page. I'll keep you abreast of the situation.

And, if you still aren't on FaceBook, shame on you. If you are, look me up.

Of course, feel free to buzz me at any time at 973-919-8065 for any help.