Although homeownership rates are still low — just 63.7 percent this past second quarter — several big players in the mortgage industry are pulling away from products that help homebuyers with credit challenges.
Earlier this year, Freddie Mac announced it was ending its zero-down payment loan options effective Nov. 1, and other large banks also have announced their move away from the market for borrowers with sub-640 credit scores.
Moves such as these give the appearance the market is turning its back on these borrowers, but you as a potential “home buyer” should be aware there are still programs available to help you purchase the homes you want.
Know the programs
Agents who know the programs that are available can help these often overlooked consumers become homeowners.
Despite Freddie Mac’s move away from zero-down-payment loans, there are still programs available to consumers who don’t have a lot of cash to bring to the table:
- FHA loans are often the most widely used, representing 22 percent of all loans originated in August 2017, according to the Ellie Mae Origination Insight Report.
Although the FHA allows for credit scores as low as 500, few borrowers are able to take advantage of this eligibility. In fact, only 1.43 percent of FHA borrowers in August had credit scores between 500 and 549, according to Ellie Mae.
Many lenders don’t loan to borrowers with credit scores in this range, making even FHA loans seem out of reach to some potential homeowners.
There are lenders that specialize in serving this market, however, and some have even recently lowered their credit-score requirements to 500 on FHA and VA loans.
By lowering the FICO score requirements, these lenders are providing greater opportunities for underserved borrowers to recover from life challenges and become homeowners.
Your Real Estate agent should be Partnered with lenders who work with clients with low credit scores. That Lender Partner will have extensive expertise in underwriting and servicing these types of loans, as well as offer programs that meet the needs of borrowers with a wide range of credit profiles.
And because buying a home isn’t as simple as just securing the mortgage financing, your agent should seek out lenders that work to make sure your needs are fulfilled.
Lenders that truly serve the underserved community not only offer loan products that work within borrowers’ financial constraints but also provide additional information and education to ensure homebuyers are in a sound financial position after they purchase a home.
Many potential homebuyers are sitting on the sidelines today because they have yet to find a way to enter into homeownership, either because they’re unaware of the lending options available to them or because they can’t find a lender that offers these programs.
By partnering with a forward-thinking lender and an agent that understands credit-challenged borrowing hurdles, you can become a responsible homeowners. Live the American Dream and become a home owner!