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Minimum Credit Requirements to Buy a Home with 100% Financing
By Ron Stone
Obtaining a mortgage for 100% of the purchase price of a home is much more common today than a few years ago since most people don’t have a bunch of money to put down. Also, in many cases the buyer will finance in the closing costs. And while every lender has somewhat different credit requirements, following are the basic requirements.
• A middle credit score (of the 3 bureaus) of 600. Most lenders recently bumped up the score requirement from 580 to 600. There are however, still a few lenders that will do 100% for a mid score of 580. Also, in most cases you must have at least 2 credit scores. If you only have 2, use the lower of the 2.
• No late rent payments for the last 12 months. The definition of late is 30 days late. As to proof of this, most lenders fall into 1 of 3 categories. 1) Copies of canceled checks, 2) A letter from a landlord and 3) A few don’t even check.
• Time since a Bankruptcy varies all over the board. Some will do 100% if you are only 1 day out. Some want at least 2 years.
• Time since a foreclosure of 3 years. This is true with nearly everyone. One more note on foreclosures. Many lenders call a mortgage with a 120-day late a foreclosure even if it wasn’t actually foreclosed on. Sorry, don’t shoot the messenger.
• A maximum debt to income (or DTI) ratio of 50% and for some lenders 55%. A DTI is calculated by dividing all monthly debt payments including the proposed mortgage with taxes and insurance by your monthly gross income. With many lenders, if you have a mid score of 640,
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you can “state” (don’t have to prove, within reason) your income. The rate is higher but it can get you over a DTI problem.
• Other – For people with No credit scores and scores below 580, there is still hope. Actually this could turn out to be the best deal ever if you qualify. This involves mostly government (FHA, VA, etc.) loans although there are a couple of non-government programs that do 100% with no scores. While there is a good bit more work needed by you and your broker, these programs can be wonderful. For example, I have helped many people obtain 100% financing with these programs with 30 year fixed rates of 6.75 to 7% and a little mortgage insurance, versus 9%+ on other 100% loans. The key is to have 4 trade lines, which usually don’t show on your credit (rent, utilities, insurance, cell phone, etc.) that have been on time (again, not 30 days late) the last 1 year. You also can’t have any collections, (Some programs will make an exception for medical.) judgments or bankruptcies in the last 2 years.
Well, there you have it. One last note, if your score is below 580 and you don’t qualify for the government programs I covered above, find a broker or credit reporting service that will analyze your credit to see what you can do to quickly raise your credit score. Beware of all the quick fix credit repair services out there. Improving your credit score can sometimes be tricky but doable. For example, paying off an old collection can actually bring your score DOWN! I know this is hard to believe, but I have seen it.
Ron Stone is a Mortgage Loan Originator specializing in helping people with less than perfect credit to obtain a mortgage. He works in the states of Alabama and Florida. To learn more about the great Alabama Mortgage programs (he has similar programs for Florida), visit him at http://www.alabama-mortgage-specialists.com
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