FHA Mortgage Refinance Credit Score Qualification Creeping Upward

It appears that banks and lending institutions are becoming even more stingy with their money, not only as it relates to business and short-term lending, but also for mortgage loans. One of the bigger shifts in qualification standards for refinancing homeowners pertains to the FHA loans program.

Throughout the subprime meltdown, FHA loans appeared to be the saving grace for many borrowers, as it allowed people with poor credit to get refinanced at awesome refinance rates, and up to a 97 percent LTV to boot.

Even though FHA loans are not technically credit score driven, the actual lenders underwriting and funding the loans have a minimum credit score limit that they will accept in order to qualify for the mortgage. That low limit was set at a 580 score throughout 2008 and for the beginning months of 2009. Unfortunately, that lower limit threshold has drifted upward for most lenders. As of this moment, most refinancing homeowners will have to have a minimum 600 to 620 mid fico score in order to qualify for an FHA loan.

There are most likely some lenders out there that will accept the older scoring limits, but my best guess is that you will have to pay a premium with a higher qualified mortgage rate, than the current market is bearing for the same loan scenario with a 600 to 620 credit score.

Yes, FHA rates are still great for lower qualified credit scores, but I’m afraid that a rather large percentage of poor credit score homeowners will be left out in the cold when they try to refinance.

If you find yourself with a sub 600 credit score and really need to refinance, especially if your major motivation is for cash-out or to consolidate debts, then you might want to consider the aid of a credit restoration company. Many times, credit reports have false information or negative items that can be removed. A credit repairer can take care of these items rather quickly and possibly have your score raised into refinance qualification range within 90 days or so.

If you do contact a credit repair company, make sure that they go over your credit report with you first, and also let you know if they can raise your score to the appropriate level, along with the timeframe anticipated to do this. There are many credit restoration companies that are long on fees and short on results. A reasonable fee should be no more than $300 to $400 for a year’s service for one individual.

Also consider that an improved credit score not only helps with mortgage qualification, but also for all other financial (credit related) matters, and even job opportunities.

May the Mortgage Refinance Rates be with You!

Refinance Tool Box

Whitehouse Unveils Home Mortgage Assistance Program

Well, the day has finally come for the government to unveil the details of its home assistance mortgage program, aimed at helping up to 9 million homeowners to stay in their homes and avoid foreclosure. Overall, it is targeted to provide subsidized payment to lenders and mortgage servicers in exchange for a modified home loan for borrowers that qualify for the plan.

One to four unit primary residence homes will qualify under the plan, but investment properties are excluded.

The Treasury will partner with lenders to reduce monthly mortgage payments to a 31% front end dti (new principle, interest, taxes and insurance payment divided by individual’s gross monthly income). There is no restriction on the back end dti (which includes PITI plus all other credit items), but those that come in at 55% or over will be required to work with a HUD approved counselor.

Loan servicers will receive an upfront incentive payment of $1,000, and an additional $1,000 yearly payment for three years, as long as the borrower stays with the modified loan program. Borrowers will receive a pay-for-performance success payment up to $1,000 for five years (as long as all monthly payments are made on time) that will go directly to reducing principal. Also, a one-time bonus incentive payment of $1,500 for lenders and $500 for servicers, will be paid for loan modifications done for borrowers that are current on their home mortgage. No modification charges or fees will be borne by the borrower.

Lenders will only be compensated when the front end dti of 31% is achieved. The Treasury will pay half of the difference between the monthly payment reduction from 38% dti to 31% dti.

Will this be enough incentive for lenders to modify loans for those that cannot, or are having difficulty making their monthly mortgage payments? The incentives will most likely help, but it will most likely come down to a case by case situation. The cost of added administrative duties, coupled with the current high fallout by borrowers that have already had their home loans modified, may be enough for many lenders to limit their participation in the program.

Only time will tell whether the program is successful, and hopefully we will have a more accurate picture of it’s impact in the coming months. Anything that will help people to stay in their homes and prevent further foreclosures will be a benefit for us all.

May the Mortgage Refinance Rates be with You!

Refinance Tool Box

Home Price Drop Effect on Refinancing Your Home

Standard & Poor's/Case-Shiller home price index released on Tuesday reported that prices of U.S. single-family homes plunged 18.5 percent in December from a year earlier as the monthly pace accelerated. There seems to be no area immune from the downward trend. As to add insult to injury, since the housing market peak in the second quarter of 2006, home prices have plummeted 26.7 percent, on average.

So how does this effect the refinancing of my home? Well, for some, it will have little or no effect, but for others, it can mean the difference between a great rate and a good rate, or even downright non-benefit for the homeowner.

The key number is 80 percent. That is, for those refinancing 80 percent or less of the value of their home, they will be eligible for current low advertised refinance rates. But, as you move up above the 80 percent ranks, interest rates will move upward and mortgage insurance will be added to your new monthly payment. Depending upon the loan scenario, this can create a no-win end game for those financing well over 80 percent of their home’s value.

But hey, this is the time to be checking on refinancing if you are looking for low rates. Rates are still near all-time lows and you may stand to receive substantial benefits by refinancing now. If you have a good idea on the value of your home and the numbers show that you would be refinancing less than the 80 percent key value, it is definitely worth a look.

Yes, credit scores also play an important role for the great offered rates. Those with credit scores above 720, coupled with a loan-to-value ratio under 80 percent are in the greatest position to close on current low refinance rates.

So, what about us refinancing over 80 percent of the value of our home, with sub 720 scores to boot? Glad you asked.

FHA refinance loans are definitely the way to go for high LTV loan scenarios and for those with credit scores in the 600 to 720 fico range. The qualified rates are almost as good as current prime conventional loan rates for those under 80 LTV and with great credit. So there is a place for most homeowners to cash-in on low refinance rates.

Again, home value is key. Have a good idea about the value of your home before getting a quote. If you are below 80 LTV for your loan scenario, then you are in good shape. Above an 80 LTV, then you will want to get a comparison between prime conventional home loan rates and FHA refinance rates.

May the Mortgage Refinance Rates be with You!

Refinance Tool Box

Mortgage Rates Remain Solid Into Holiday Season

If you have been waiting for rates to drop in order to refinance your home loan, consider current refinance rates as your early Christmas present. Par 30 year fixed rates are still hovering in the 5 percent range, which can provide huge benefits to those currently at 6 percent or higher, and looking to either reduce payments or shorten the term of their mortgage.

Just remember that the primo rates are being offered to those refinancing with a loan-to-value of 80% or lower and excellent credit scores. Although mortgage programs across the board have dropped, the previous scenario mentioned is where you can really rake in a nice drop in rate.

For those that have a high loan-to-value ratio and/or poor credit scores, FHA refinance programs are not far behind conventional pricing and still offering great rates.

If you are still on the fence waiting to unwrap that mortgage present this holiday season, consider the following. Bottom line, how much will I lose if I do not lock a rate now? Secondly, and very important… How long do I plan to stay in a new mortgage if I lock a low rate? For instance, if you can save $200 per month by locking now and it costs $4,000 in closing costs, you will break even in 20 months. Now, after 20 months, you will make out with a free and clear $200 per month savings and net a total interest savings of $68,000 over the term of a 30 year mortgage. Now that’s some Christmas cheer!

Home values continue to plague many looking to refinance as home prices continue to fall. The National Association of Realtors said today that existing home sales fell 8.6 percent to an annual rate of 4.49 million in November, from a downwardly revised pace of 4.91 million in October. Just as important is the fact that sales of distressed properties made up 45 percent of all property sales in November. That is a bad sign in the short term, but may prove to at least stabilize home prices going into the new year.
The Treasury yields are still ultra low, while the mortgage spread remains at very high levels. Expect mortgage rates to hover in the current range for a while, unless the yields have a strong bounce, in which case rates will rise close to the increase in the 10-year Treasury yield. If you are undecided about locking a rate now, consider that we are still near historic lows and you could stand to make a nice long-term benefit for rate-term refinances and a significant monthly savings on a debt consolidation loan.
Merry Christmas!

May the Mortgage Refinance Rates be with You!

Refinance Tool Box

Bad Credit Refinance

Exactly what is a “Bad Credit Refinance”?

Now this is not an official definition, but I’ll give it a go. A bad credit refinance is one in which an individual’s credit score and/or derogatory items listed on their credit report result in non-qualification for a prime conventional mortgage. In other words, you have to apply for a subprime refinance or an FHA home loan. The worst-case scenario is when the individual does not qualify for any refinance program available.

In recent years, most with bad credit would eventually refinance with a subprime lender and end up paying up to 3% and more in interest rate as opposed to the same loan scenario qualified with excellent credit. Yes there was a huge difference in refinance rates between bad credit subprime and excellent credit conventional home loans.

Those keeping up with the mortgage market, now understand that subprime lenders are pretty much a thing of the past and FHA has stepped in to fill the void. The important difference is that FHA home loans offer a distinct advantage over subprime mortgages in that they offer excellent refinance rates (comparable to excellent credit conventional interest rates) coupled with a high Loan-to-Value limit of 97% of the borrowers appraised home value.

So tell me, what is a bad credit refinance?

Again, this is not an official definition, but generally those individuals that have credit scores below a 620 FICO fall into the “bad credit” refinance scenario. In fact, those with credit scores between 620-700 and/or those financing most of the equity in their home would be advised to get an FHA home loan quote in addition to a conventional mortgage program quote to choose the best option for them.

FHA home loans are not credit score driven, but most underwriting investors will require a minimum of a 580 credit score to qualify. Also, no mortgage late payments in the previous 12 months will be allowed.

Those with credit scores below 580 will have a much more difficult time qualifying for a competitive refinance home loan. Today, it is mostly “hard money” lenders that cater to this crowd, and charge a major premium in interest rate for the privilege. An alternative to going “hard money” is to contact a reputable credit restoration company to improve your credit score within FHA range. The few hundred dollars spent on credit restoration with result in multiple thousands in principle and interest savings with a FHA refinance as opposed to a “hard money” home loan.

May the Mortgage Rates be with You!

Refinance Tool Box