With all the recent changes in the mortgage programs, many people wonder if it’s still possible to get a mortgage with a 620 credit score. Ultimately, the answer depends on other factors besides just your credit score.

However, the vast majority of all lenders are now requiring at least a 620 minimum median credit score to get any type of mortgage. If you are lucky enough to find a bank to approve you for a mortgage with a credit score of less than 620, you will definitely pay a higher interest rate. It would certainly be advantageous to raise your credit score to at least a 620 prior to applying for a mortgage.

There are three main types of loans available: FHA, VA and Conventional. Conventional Loans (meaning those eligible for purchase by Fannie Mae and Freddie Mac) typically require a minimum credit score of 620. Furthermore, Fannie Mae requires higher interest rates (between .125% and 1%) for credit scores below 680. The amount of the rate increase ultimately depends on both credit score and the amount of down payment. FHA loans may have some adjustments as well, although there is no specific criteria outlined by FHA in this instance. The score adjustments vary from one lender to the next. We at www.4bestrate.com work with a variety of lending sources to offer you the best possible rates and service available for FHA buyers.

The mortgage insurance on FHA loans is typically less expensive than for Conventional loans as well, so FHA is usually the loan that makes the most sense for borrowers with credit scores in the 620 range.VA loans have very similar underwriting guidelines and interest rates as FHA loans, so they are a great choice for qualified veterans with a 620 credit score. VA loans also are available with no money down, and since FHA loans now require a minimum down payment of 3.5%(as of January 1, 2009), veterans will definitely find VA loans more attractive than any other loan option.But as I mentioned above, there are other requirements to get a mortgage besides just having a certain credit score.

For starters, all lenders (FHA, VA and Conventional) require buyers to have a minimum of three trade lines (meaning open and active accounts, such as a credit card, car loan or other type of finance account) in order to consider an applicant for loan approval. This is another area where FHA and VA are more flexible than Conventional loans because they allow a buyer to use non-traditional credit references, such as utility bills and insurance payments, to meet this guideline. However, if more than one late payment exists on any of these accounts in the last 12 months, the loan will typically be denied. That’s why aspiring home buyers with a limited credit history should consider secured credit cards as a way to build a good credit history. Secured credit cards can be obtained by almost anyone, regardless of credit, because they are secured with a savings deposit.In addition to the minimum credit requirements, lenders will also look at your debt-to-income ratio, as well as your income and employment history for the last two years.

Reduced documentation (stated income) loans are not available with any of these programs anymore, and may not make a comeback for a while. Buyers who recently graduated from college or who took time off to have children may still be eligible without a solid two year work history. Retirees and individuals with other documented sources of income may also still qualify without actually having to be employed. FHA typically likes to see that buyers are spending no more than 40-45% of their gross income on debts, and the conventional loan guideline is 38%.

And lastly, there are some situations which may disqualify a buyer from getting a loan. These include:Chapter 7 Bankruptcy – Must be discharged for two years to obtain an FHA loan.Chapter 13 Bankruptcy – Must have at least a one year satisfactory payment history to be eligible for an FHA loan.Foreclosure – Must be over three years old. Five years for Conventional loans (two if a short sale)Consumer Credit Counseling – Must have at least a one year satisfactory payment history. Conventional loans may require less than one year in some cases.

Perspective home buyers that have a credit score in the 620 range should take extra steps to ensure their credit score does not drop any lower. Virtually all lenders will not loan to anyone with less than a 620 credit score.

Monitoring your credit report and score in the months before you plan to apply for a loan IS CRITICAL to insure that you will not blow your chances of qualifying because of some minor change in your credit file. Even a small collection account of less than $100 or one late payment can plunge your credit score by dozens of points. And if this happens in the middle of the loan process, the result can be hundreds or thousands of dollars in lost earnest money and inspection fees.

Homewood Mortgage is an aggressive FHA lender that specializes in helping clients with less than perfect credit. If you want to know what you need to do to qualify for a mortgage, call Homewood Mortgage today at 972-387-9215 or APPLY ONLINE. Rates are at 52 year record lows and won’t stay this low forever!

Homebuyers that are sitting on the fence trying to decide whethoer or not to take advantage of the record low mortgage rates should know that higher rates may be on the way soon. At the present time, buyers with low credit scores are still be able to get mortgages, but many lenders have imposed credit score increases for those with less than perfect credit. Some additional credit score increases may be on the way soon as well.

The current rate adjustments for some popular loans are described below. The amount of the rate adjustment depends on what type of loan you are looking for.

There are two main types of mortgage loans: Government-insured loans and Conventional Loans. FHA, VA and USDA loans are all government-insured loans. Conventional loans are those purchased from banks by Fannie Mae and Freddie Mac. Conventional loans have very specific interest rate adjustments based on a variety of factors, including credit score, loan to value ratio, COMBINED loan to value ratio (in the case of a first and second mortgage), property type and occupancy of the property. Government loans, on the other hand, do not have nearly as many rate adjustments. In some cases, lenders will charge higher rates for higher risk factors.

CONVENTIONAL LOANS

Currently, Fannie Mae has a matrix of “loan level price adjustments”, which are basically adjustments to the yield of mortgages based on two main factors-credit score and loan-to-value ratio. The qualifying credit score is the borrower’s middle credit score from the three credit bureaus. Loan to value ratio means the amount of the loan compared to either the property value on a refinance transaction, or the sales price on a purchase transaction. For example, a borrower putting down 5% on a purchase has a loan-to-value ratio of 95%. And a borrower refinancing a $95000 mortgage on a home valued at $100,000 also has a loan-to-value ratio of 95%.

Fannie Mae announced on December 29th of 2008 that the loan level price adjustments would be increasing effective on all loans delivered to them after April 1, 2009. This has made conventional loans less competitive compared to their government counterparts like FHA, VA and USDA. Of course, FHA has loan limits of $271,050 in the Dallas / Fort Worth area, so this may not be an option for buyers looking for homes priced above this level.

Here is an example of how the new adjustments will affect the points paid on a $100,000 mortgage (click the image to view larger size):

These dollar amounts represent the amount of discount fees (points) that a borrower will have to pay in order to obtain a “par” rate. An alternative to paying these points is to “premium price” the rate, meaning accept a higher rate and have the lender pay the discount fee. Since the premiums paid by lenders varies greatly, there’s no way to know exactly how much higher that rate will be without consulting a mortgage lender and having them do a complete loan pre-approval, including obtaining a three bureau credit report with credit scores. Here’s an estimate of the average rate increase to expect:

$500 cost – Rate is typically .125% to .25% higher.

$1000 cost – Rate is typically .25% to .5% higher.

$1500 cost – Rate is typically .375% to .625% higher.

$2000 cost – Rate is typically .5% to .75% higher.

$2500 cost – Rate is typically .75% to 1% higher.

$3000 cost – Rate is typically .875% to 1.25% higher.

AND IN ADDITION to these adjustments, there are others for additional risk factors, such as:

• Home equity loans (cash out)
• Property Type (condos and two unit properties)
• Adding an interest-only feature
• Occupancy of the property (primary residence, second home or investment property)

GOVERNMENT LOANS

Up until recently, many types of government loans were available on credit scores of less than 620. These days, lenders not only require a minimum credit score of 620 but also impose higher rates for buyers with credit scores of less than 660 in many cases.

IN addition to these adjustments, some in the industry expect that FHA will come out with some additional rate adjustments to buyers with low credit scores at some point. It was also recently announced that the FHA minimum reserve requirement had dropped below the Federally mandated level of 2%. At some point, Congress will have to figure out how they will replenish this deficit. Loan level price adjustments, as well as possibly higher premiums for mortgage insurance, are certainly a possibility.

Aspiring homeowners should give us a call today to discuss their options. There are many different ways we counsel homebuyers on how to increase their credit score prior to qualifying for a home loan. Today’s mortgage rates are near record lows primarily because the government is purchasing mortgage-backed securities. However, this program is slated to end in March of 2010. With the threat of increased rate adjustments and the ending of this program, home buyers that delay purchasing a home may be missing out on the lowest rates in two generations.