Qualifying for a mortgage isn’t impossible


Qualifying for a mortgage isn’t impossible

LOS ANGELES – Jan. 7, 2015 – Many potential homebuyers are so leery about qualifying for a mortgage that they say they're not going to even try. Nearly 60 percent of potential homebuyers say they want to purchase a home, but they aren't pursuing it because they believe their mortgage application would be rejected, according to a survey conducted by LoanDepot, a mortgage company.

That fear has stalled many would-be buyers and could represent a potential pool of leads for real estate agents: Three quarters of them admit they haven't even checked out current lender requirements, according to the survey.

But credit score and downpayment requirements are showing signs of softening.

Mortgage financing giants Fannie Mae and Freddie Mac, for example, recently announced changes that should allow lenders to feel more confident about the mortgages they approve, as they won't be subjected to costly "buyback" demands if borrowers become delinquent on the loan. These buyback fears prompted many lenders in recent years to tighten underwriting requirements and add extra fees to compensate for potential losses on loans to borrowers who have below-average credit scores, small downpayments, or minimal assets in reserve.

The new policy "should encourage lenders to serve a broader range of qualified borrowers," says David Lowman, a Freddie Mac executive vice president. It also should prompt more lenders to make "mortgages available to more borrowers," added Andrew Bon Salle, an executive at Fannie Mae.

Fannie Mae and Freddie Mac also plan to resume lending to buyers who can make 3 percent downpayments, which is lower than their current minimum of 5 percent. The Federal Housing Administration already allows 3.5 percent for a downpayment, but it adds hefty insurance premiums, which make its loans more expensive than Fannie and Freddie's.

Borrowers may find that lenders are softening credit score requirements too. In October, the average FICO score for all types of closed loans was 726 – lower than the widely assumed 750 to 760, according to Ellie Mae, a software firm. The average borrower at FHA had a FICO score of 683 during October.

"There are many people who can now afford to buy a home and qualify for a mortgage but simply don't realize it," says Vance Edwards, marketing program manager for Mortgage Guaranty Insurance.

Source: "Nation's Housing: Qualifying for a Mortgage May Be Easier Than You Think," The Los Angeles Times (Dec. 7, 2014).

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