Under 740? Ask for an improved credit score for Christmas

With all the subprime loan problems that have hit this country this year, (see my earlier blog entries) we are starting to see new guidelines for obtaining a home loan. My friend, Mickey Carlton wrote me about one of the changes that we will see in the next few weeks. To understand what he shares below, I'll explain a little about the home loan process.

When you go to a company to get a home loan, they are considered the primary mortgage market. After closing your loan, they are usually sold to the secondary mortgage market, including Fannie Mae and Freddie Mac. When they put out new guidelines, everyone has to follow them, or they cannot sell their loan. Given that background for those of you who are new to the market, here are Mickey's words:

Historically, an approval by Fannie Mae or Freddie Mac's proprietary software meant that a borrower qualified for "good rates" regardless of his or her credit scores. The computer software considered the scores along with loan amount, income and employment history, and liquid assets. An approval obtained by the 640 credit score applicant was as marketable as an approval by a 740 credit score applicant.

This is no longer true. The agencies are changing their pricing models on loans delivered after March 1, 2008. A loan that closes in January might not make it to the agency until March so most banks are already adjusting their pricing. In the very near future, buyers are going to be priced depending upon their credit scores. Lower scored borrowers may be priced out of the Fannie/Freddie market even if they qualify for a Fannie/Freddie program. The answer, in many cases, will be FHA. There are no more subprime loans and Fannie/Freddie is making it harder on the marginal borrowers to obtain a "good" rate.

Bottom line: you need a credit score of 740 or higher for a good interest rate loan. If you have a few "dings" in your credit, contact me at http://www.audreybutlerhomes.com/ and I can connect you to someone who can provide guidance to help you.

More bad news for Florida homeowners

RealtyTrac reports today that the number of foreclosure filings in August jumped 36% since July in the US. That is more than double from the same time last year.

Florida was one of 3 states that had the highest foreclosure rates, according to their research. Our foreclosure filings were up 77% from July's total. We had 33,932 foreclosure filings! For us, that means that we had one foreclosure filing for every 243 households.

This research confirms what Realtors have been forecasting for weeks. Unfortunately, we are continuing to see the fallout from sub-prime loans. Also, the number of homes for sale are increasing at an alarming rate, meaning that we have over 18 months of inventory in the Orlando area (6 months of inventory gives us an equal buyer/seller market).

As I look at properties for sale in the newspaper, I can immediately tell you which properties are overpriced---be careful about choosing a Realtor in this market who is telling you about the price you want to hear when listing your property. If you have to sell, choose a real estate consultant that is going to tell you the truth. Going with the person who will list your house for the most money may result in your property sitting for over a year on the market. Hire someone that will explain that you have to stay ahead of the curve.

Unfortunately, this trend is only getting worse, not better. When will we hit the bottom? We won't know that until that time has passed......

Concerned you won't get a mortgage?

I have been talking to friends, and many are concerned that they would not qualify for a loan, due to the recent news of mortgage companies closing. Yes, approximately 120 mortgage companies closed, but there are many other companies still providing loan money for qualified purchasers. They are also continuing to refinance current homeowners.

The type of loan that created this problem, as I discussed a while back, is the sub-prime loan. It may be harder to qualify for a loan today, but many of the sub-prime loans had a high interest ARM. Qualifying for a loan with difficult credit only resulted in greater cost, meaning that many homeowners got into a house, but can no longer afford the mortgage payment.

If you have good credit, money in the bank, and a desire to purchase a home, you are a good candidate to apply for a 30 year fixed mortgage with a good interest rate. Last week, the interest rate ranged from 6.625% to 7.125% without having to pay points. An individual borrower's rate will depend upon loan size and creditworthiness.

Unsure of your creditworthiness? Call me, and I will be glad to provide the name of some very reputable mortgage brokers and bankers.

I don't have a crystal ball......

...so I read a lot about the real estate market from experts in the field. The chief economist for the National Association of Realtors, David Lereah, states that existing-home sales are projected at 6.42 million this year, and 6.66 million in 2008, compared with 6.48 million last year. Although some home sales will be reduced by the sub-prime loan restrictions, they should be gradually rising this year and next.

I know I am sounding like a broken record, but this is a good time to buy!

Don't get caught in the foreclosure wave

When the real estate market was booming these last several years, lenders often ignored borrowers' credit problems because the property values were rising. Now, with the downturn, lenders are looking at borrowers who are paying late.

According to the Christian Science Monitor, that means 2.2 million people are facing foreclosure and could lose their homes.

The majority of these loans are called subprime---meaning that the loans are for people who do not qualify for prime market rates because of blemished or limited credit. Wikipedia.com says that about 25% of the population falls into this category---they have a credit rating below 700.

In 1995, only 5% of mortgages were subprime. Today, Wall Street estimates it is about 18 to 24%.

I'm all for home ownership for everyone, but one needs wise when purchasing a home. With subprime loans come higher interest rates and a greater risk of losing your house. There may be a short-term gain of a new home, but it could cause greater credit problems down the line if you are unable to make the payment. Also, if you are able to improve your credit prior to your purchase, you could qualify for a better interest rate.

In response to this major problem, Freddie Mac said on February 28th it will stop buying subprime adjustable-rate mortgages and will require more borrowers to prove they earn the income they disclose on their loan applications. Unfortunately, this may be too late for many.