Credit Score News, Tips & Advice
Website CertifiedPrivacy Protected
Credit Score News, Tips & Advice « Credit Scores > Credit Score News > Home Loans Still Hard to Get despite Near-record Low Mortgage Rates

Home Loans Still Hard to Get despite Near-record Low Mortgage Rates

By Sally Maison
Published: Wednesday, November 18th, 2009

Mortgage rates are at the lowest they have been for years, but creditors still make it difficult for bad credit consumers to get a home loan.

Home Loans Still Hard to Get despite Near-record Low Mortgage RatesFor the last two years, the major government-backed mortgage lenders, Fannie Mae and Freddie Mac, have gradually increased lending standards in different ways.

Both government-sponsored enterprises imposed a “risk-based” pricing, raising costs for consumers who are more likely to default on their loan. The GSEs use the credit score of mortgage applicants to determine their riskiness. Consumers whose rating is below 660 are charged with three percent of the loan amount if they make a down payment of less than 25 percent. Those who hold a home equity line of credit upon application are charged with another fee that is .75 percent worth of the amount being borrowed.

More changes are expected to come from Fannie Mae as the federal creditor upgrade its software program that determines mortgage loan decisions. The Desktop Underwriter will be upgraded a newer version called DU8 and will be used starting Dec. 12. Several lending guidelines will be altered, and could affect a huge number of borrowers according to lenders.

Among the most significant changes is the restriction of the debts consumers are allowed to carry. Starting next month, the amount of loan consumers can borrow will be limited by their current debts and monthly income. Otherwise known as debt ratio, it is computed by adding up a borrower’s monthly payments and dividing them with his total monthly before-tax income. Under existing guidelines, borrowers are allowed to get mortgages with debt ratios 55 percent or greater. But Fannie uses its new software, that debt ratio will be reduced to 45 percent.

Some borrowers will be able allowed higher debt ratios, 50 percent or higher, if they have strong qualifications. This includes having a super-prime credit score and owning a good number of equities in the house being financed.

Lenders say the new guidelines will leave many homeowners out in the cold since they will find it a lot more difficult to refinance. For instance, someone who has a debt ratio of 51 percent may not be able to get an affordable loan if it requires a debt ratio of 46 percent.

Fannie also increased the minimum credit score requirements for all home purchases and majority of refinance. Previously, the minimum allowable rating was 580 but it now stands at 620. On a brighter note, there is no minimum credit score required for those who are able to avail the Home Affordable Refinance program.

No Comments

No comments yet.

RSS feed for comments on this post.

Sorry, the comment form is closed at this time.