Think Again if You Expect to Easily Qualify for a Subprime Mortgage

The United States housing market has been battling a difficult correction over the past year but one of the most impacting economic factors that many people are not talking about is the rising number of foreclosures and what it means for many mortgage companies across the country that specialize in subprime lending.

And if you do not care much about corporate America and think that if you have to borrow a subprime mortgage, you will make timely payments and avoid becoming a negative statistic, think again; you may never get the chance.

The article, “Shifting housing market snubs bad credit,” written by Dave Collins for the Associated Press and then posted February 25, 2007 on sacbee.com, explains how subprime mortgages are no longer going to be easy to obtain.

There has been warning over the past year that mortgage lenders will be tightening their underwriting guidelines on subprime mortgages but that talk was more for legal purposes. But now mortgage companies are seeing the affects of lending high rate mortgages to those who default payment and are taking matters into their own hands.
“Homeowners with troubled credit histories are finding it harder to get mortgages or refinance homes because softening in the housing market is making lenders less likely to handle riskier loans.”

Mortgage companies are looking out for themselves if not for the customer when requiring better documentations and evidence of the possibility to repay a subprime mortgage before agreeing to lend.
“On Wednesday, shares of Kansas City, Mo.-based Novastar Financial Inc. plunged more than 42 percent to $10.10 per share after the subprime lender posted fourth quarter losses of $14.4 million. Company officials set aside $45 million in anticipation of defaulting mortgages and said they were unsure Novastar would turn a profit in the next five years.”

The major requirement that is changing is the minimum credit score to be approved for a mortgage. According to David Zionts, owner of Connecticut Mortgage Lenders LLC, a borrower looking to take out a 100 percent financing mortgage must now have at least a 600 credit score to qualify opposed to the previous minimum of 580.
“A high-value loan with no income verification could be had last year with a credit score of 620 a year ago but now needs a minimum score of 640, he said.”

And these credit score guidelines will be less negotiable unlike what they used to be when mortgage companies valued volume over quality. During the booming years, most companies could afford a few defaults here and there because they were originating so many mortgages. The current correction ahs not allowed that luxury.

“‘The most immediate impact will be that both the lenders and investors will be more careful on who they make loans to,’ said Richard F. DeMong, a bank management professor at the University of Virginia. ‘In Finance 101, we try to teach that return should be enough to compensate for risk.’”

These stricter guidelines are ultimately being imposed to protect both mortgage companies and you, the borrower but most prospective borrowers would rather be given the opportunity to attempt to borrow a subprime mortgage than be limited.
But for the stubborn subprime mortgage borrower, not all hope is lost.
“‘There's still a saturation of lenders still out there lending in the subprime market,’ said Phil Cyr, owner of Equity Lenders, a small mortgage company in Berlin, Conn.”

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Houston First Time Buyers Mortgage Information

For many people the American dream involves owning a home. There are a number of programs available to make it easier for those with limited credit, or limited down payment funds, to get a home. These are often called “first-time buyers” plans.

One option is a Federal Housing Authority (FHA) mortgage. FHA doesn’t actually make the loan but they provide a guarantee for the loan. This means that a lender that may otherwise say no will say yes. The rate will also be low because the lender is protected by the FHA if you default. It can be possible to get a FHA loan even if you have no credit listed with the credit bureaus.

Fannie Mae and Freddy Mac also have programs for first time buyers. Each plan has different details but the borrower will typically need at least two years on the same job. A shorter employment time can be possible if there is a total of two years in the same field. You will also need to show enough income to afford the property you want plus your other expenses. As a general guideline, all of your monthly installment costs should be 41% or less of your total household income.

FHA loans require a 3% down payment. With the Fannie / Freddie mortgages it may be possible to get a 100% loan. You will also need about 3% to 4% for closing costs. In some cases the seller will pay all or some of your closing costs. It may also be possible to get a down payment assistance grant to pay all, or some, of your down payment . With the right situation it can be possible to get a home with no cash, or a small amount of cash.

One source of first time buyer’s information is a local realtor or mortgage broker that is knowledgeable about these programs. A good mortgage broker can review your situation and tell you what you could qualify for and what the terms would be. The buying process can be easier if you get a good realtor and a loan broker to work with you.

Texas residents can visit my Houston first time buyer mortgage website for information. Or call my office at 281-537-7800.

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