The times when almost any buyer could qualify for a mortgage loan and purchase a home are gone. Buyers must pass stricter underwriting tests and jump through more hoops to legitimately qualify for a home mortgage loan. The resources below can help REALTORS® and consumers alike learn more about favorable loans and mortgage eligibility requirements.
Favorable loan programs
Despite rumors to the contrary, buyers can still find a 100-percent loan package if they can meet the qualifications, which may include completion of homeownership education and a high credit score.
Fannie Mae/Freddie Mac
Fannie Mae and Freddie Mac offer home mortgage programs for buyers with limited credit and savings, including teachers, firefighters and members of the military. Some programs offer a conventional mortgage for up to 95-97 percent of the purchase price. See eFannieMae at www.efanniemae.com/home/index.jsp and Freddie Mac at www.freddiemac.com/sell/expmkts/affprod.html.
FHA
Federal Housing Administration loans are making a strong comeback and have also become an extremely valuable tool, particularly for first-time home buyers. The average credit score for an FHA borrower is 620, and FHA offers 3-percent down payments. For additional facts about FHA loans, visit portal.hud.gov/hudportal/HUD?src=/buying/loans.
WHEDA
Wisconsin Housing and Economic Development Authority offers long-term, below-market, fixed-rate financing with 3-percent down payments for low- to moderate-income, first-time home buyers. For more information, visit www.wheda.com/cat_sfb/Home.asp.
Veterans
The United States Department of Veterans Affairs offers affordable loans for those who have served this country in the military. Visit www.benefits.va.gov/homeloans. For information about home loans from the Wisconsin Department of Veteran Affairs, visit dva.state.wi.us/Pages/home.aspx.
Credit reports and credit scores
Credit scores have become more critical than ever. The higher the credit score, the lower the required down payment and the better the loan terms. Credit scores are based on credit report information and are used to predict whether a borrower will make loan payments on time.
Before a buyer begins house hunting, the buyer should obtain a copy of his or her credit report and credit score from the national credit reporting agencies. See “Understanding You FICO Score” at www.myfico.com/Downloads/Files/myFICO_UYFS_Booklet.pdf.
The Fair and Accurate Credit Transactions Act (FACT Act) allows an individual to get a free copy of his or her credit report information from each of the three national consumer reporting agencies once every 12 months. Visit www.ftc.gov/bcp/edu/pubs/consumer/credit/cre34.shtm.
Credit and homeownership counseling services
A buyer who has no credit history or marginal credit should contact a credit-counseling agency. Many legitimate, nonprofit agencies specialize in home buyer education and credit counseling and can help consumers repair their credit and save for a down payment. For assistance in choosing a reputable credit counselor, see the FTC information at www.consumer.ftc.gov/articles/0153-choosing-credit-counselor.
Pre-qualification versus pre-approval
- A pre-qualification is an unverified, free test run of the loan application process. The lender uses the person’s income, monthly debts, credit history and assets information as well as electronic credit reporting to verify the person’s credit worthiness and estimate what the person can afford for a mortgage payment.
- A pre-approval is a firmer commitment by the lender based upon a complete application with a fee, credit check and employment verification. A person who qualifies receives a letter that says that a mortgage loan is approved for a certain amount of money (or for a certain property) and for a certain amount of time, subject to appraisal of the property.
Down payment assistance loans, grants and gifts
Down payment assistance programs serve buyers who qualify for homeownership but who do not have the necessary down payment. A wide range of grants, loans and gifts is offered by government agencies, nonprofits, private lenders and charitable gift programs. In the gift programs, nonprofit providers furnish down payment funds for the buyer and then receive a contribution from the seller that normally exceeds the down payment assistance provided. The IRS has revoked the tax-exempt status of several of these programs, and the Department of Housing and Urban Development has tried to outlaw programs that receive funds from sellers, but has been defeated twice in court.
Mortgage loan resources
The WRA's Mortgage Loan Assistance Resource Page is loaded with valuable resources for consumers and REALTORS®.
Debbi Conrad is Director of Legal Affairs for the WRA.