Dana Point home buyers are needing higher and higher FICO scores these days in order to qualify for a mortgage. Very few Dana Point home buyers sporting credit scores below 620 are able to obtain loans. On the bright side, more are putting down less than 20 percent.
According to the February Realtor Confidence survey conducted by the National Association of Realtors (NAR), the percentage of home buyers putting less than the standard 20 percent down payment amount is at the lowest level in nearly a year. The same survey found that prospective Dana Point home buyers had difficulty qualifying for a mortgage.
Dana Point Home Buyers With Good Credit
A comparison of FICO scores for transactions as reported by Realtors responding to the survey were compared with FICO scores reported by Fannie Mae’s “Acquisition Profile. By Key Product Features”, credit availability to lower scoring applicants seems to have declined since the Fannie Mae data in 2001-2004.
For those Dana Point home buyers with good credit and access to programs like FHA, down payment requirements are lessening. Approximately 64 percent of buyers with a mortgage are putting down less than 11 percent, according to the survey.
Very few Realtors responding to the survey said prospective home buyers with FICO scores below 620 were able to obtain a mortgage. The same group said approximately 15 percent of those with FICO scores between 660 and 700 were able to get a mortgage. These figures were compared to 18 percent in the Fannie Mae data.
What Dana Point Home Buyers Should Do First
It pays for Dana Point home buyers to find out what their FICO score is before they even begin to look for a home. If there are items in your credit score that can be corrected upward, that takes time. It’s better to get the scores up before you apply for a mortgage, rather than find the home of your dreams and then find out your score is too low to qualify.
About 1/3 of your FICO score is based on how much of your available credit you are using. This is called your “credit utilization”.
The higher your utilization rate… the lower your credit score. The credit scoring models view this as you getting closer to maxing out your credit lines and becoming a higher risk.
If your credit limit is cut by your credit card issuer and has caused your credit utilization measure to drop, it subsequently lowers your credit score without you doing anything on your part.
If, however, your credit card company reduces your credit line on a credit card that you do not carry a balance on… then there is virtually no impact to your score.
Have you had credit lines decreased through no fault of your own? Let us hear about it. Click the comment link below and sound off. Your email address is NEVER published on this site, even though it is required (to prevent spam bots from posting here) to post your comment. We’d love to hear from you about this credit card limit lowering situation.
FHA Loans: Waiting Will Cost You Big Time
The FHA is making proposals to change mortgage insurance premiums, FICO (credit score) and down payment combinations and seller concessions. The changes will be posted in the Federal Register next month and after a comment period would become effective early summer.
With these rule changes, an FHA loan could cost you 10% more to close. That’s $25,000 on a $250,000 loan.
3.5% Down Payments and seller concessions of up to 6% will soon be a thing of the past for many. Mortgage insurance premiums will also increase by 1/2 point.
Here is a quick summary of the changes:
- Increase upfront Mortgage Insurance Premium (MIP) to 2.25% – up 0.5%
- Decrease seller concessions from a maximum of 6% to a maximum of 3%
- Change FICO score/down payment combinations to as low as a 3.5% for a FICO Score above 580 and up to 10% for a FICO Score below 580.
So, with a FICO score below 580, the amount of out-of-pocket money to close an FHA loan would increase by about $25,000 on a $250,000 mortgage ($1,250 MIP, $7,500 increase in seller’s concession, $16,250 increase in down payment). This would be added to the current total cost, an increase of 10%. A FICO score above 580 could still add about $8,750 or 3.5%.
The FHA is taking these actions to reduce troubled mortgages in the future. They will also be making changes to reduce fraud.
These actions will allow them to add to their reserves against bad loans. As a home buyer, these changes will increase your overall costs to borrow tremendously.
Stay tuned, we’ll keep you updated on these FHA Loan changes as they become effective.
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