But requirements over credit scores and down payments 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 down payments, 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 down payments (which is lower than their current minimum of 5 percent). The Federal Housing Administration allows 3.5 percent for a down payment, but hefty insurance premiums have made its loans more expensive than Fannie and Freddie’s, the Los Angeles Times reports.
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,” Vance Edwards, marketing program manager for Mortgage Guaranty Insurance, told the Los Angeles Times.
Source: “Nation’s Housing: Qualifying for a Mortgage May Be Easier Than You Think,” The Los Angeles Times (Dec. 7, 2014).
Reprinted from REALTOR® Magazine Online, December 2014, with permission of the NATIONAL ASSOCIATION OF REALTORS®. Copyright December 2014. All rights reserved. http://realtormag.realtor.org