Tyler Plack

What is Digitization?

Digitization is the process of converting analog information into digital data. This digital data is can then be used and processed by computers and other electronic devices. There are several advantages to digitization. It not only allows you to access your files remotely, but it also simplifies storage, streamlines data processing, and reduces overall operating costs. For all these reasons, digitization is now a must for most modern industries. This includes the loan and mortgage industry, which can enjoy major benefits from digitizing its lending process.

The ability of a lending institution to effectively compete will greatly depend on its ability to digitize its system. A paperless system will open opportunities for greater productivity, cost reduction, and improved customer service. Accordingly, this will eventually lead to increased customer acquisition, satisfaction, and retention.  

Unfortunately, for most loan and mortgage companies, the lending process is far from fully digitized. Paper forms and stuffed file cabinets remain the norm. Although some of these documents do end up being digitized eventually, the number of paper documents which are involved in the lending process will definitely surprise you.  

The Current State of the Digitized Lending Process

As of August 2018, the following milestones in digitizing the lending process have been achieved.

1. Investigation of current income and/or employment status. There are a number of online services which allow lenders to verify the current employment status and possible income stream of potential lenders. The Work Number, for example, is an online service which provides data for employees working with Fortune 500 companies.
2. Credit history and support obligations. Lenders can easily retrieve this information through credit reports; by filing a 4506-T form with the Internal Revenue Service (IRS); or by reviewing the borrower’s Form 1003. The 4506-T is a document used to request copies of prior tax transcripts which the taxpayer filed with the IRS. These tax transcripts provide the lender with valuable insight as to the financial position of the borrower/taxpayer, especially in relation to his level of income. The borrower/taxpayer, however, must still sign and date the 4506-T to allow the lender to retrieve his data. On the other hand, Form 1003, also known as the Uniform Residential Loan Application Form, is a standardized document developed by the Federal National Mortgage Association. This form contains all the necessary information that lenders need to review for mortgage applications. It includes a wide range of information designed to give lenders a bird’s eye view of the borrower’s finances. For example, sources of income, list of assets and liabilities, existing debts, prior foreclosures, and declarations of bankruptcy are all included in Form 1003. Fortunately, with the right software in place, these documents can easily be completed electronically. By doing so, the lender will no longer need printed copies of the 4506-T or Form 1003.
3. Monthly residual income, income-to-debt ratio, etc. Similar to the above, all this information can easily be derived by analyzing the creditor report, 4506-T or Form 1003.

At first glance, it may seem that we’ve come a long way in digitizing the lending process. However, this is far from the truth. There are still several aspects of the lending process which are not fully automated.

1. Appraisal. Unfortunately, there is currently no viable automated substitute for human appraisers. Real people need to go out and evaluate the present condition of the land or object mortgaged.
2. Nonstandard borrowers. Automated systems operate by examining predetermined variables. Although this significantly streamlines the lending process, it also comes with its own limitations. For example, an automated system will probably deny a borrower’s loan application because the income stated in his latest tax return is too low. However, it does not take into consideration the possibility that the borrower may have improved his means between the time he filed his tax return and the time he filed his application. Thus, human intervention is still required to assess nonstandard borrowers.
3. Legal compliance. The intricacies of Federal mortgage laws make paperless compliance extremely difficult. Most of the time, parties will be required to place their signature and/or thumbprint on a stack of documents. This is done so that lawyers and other legal professionals can retain hardcopies.

Craving for Change

Even though the lending process is very complicated and highly regulated, there remains a significant interest in digitization. Lenders can clearly benefit from the improved efficiency, cost savings, and other benefits of a fully digitized system. Borrowers, on the other hand, can benefit through faster approval times, electronic submission of supporting documents, and more.

But despite the advantages of a fully digitized process, the lending process will still benefit from a human touch. Majority of borrowers will still want to discuss their options with a lending officer before committing to a transaction. Meeting a lending officer has several advantages. It assures the borrower that the establishment cares about his business. It also allows the establishment to explain the specifics of the loan and assess nonstandard variables.

Taking the Lending Process from Paper to Electronic Documents

For a long time now, paper documents have dominated the lending process. In fact, one loan and mortgage transaction can generate about 500 pages of documents. These include years of financial records, across several employers, businesses, mortgages, gifts, grants, and personal household expenses. The borrower will have to make several appearances, while the loan officer has to scrutinize and verify stacks of documents. More often than not, additional documents will be needed and requested from buyers. To complicate things even more, borrowers are left in the dark on the progress of the loan application while the loan officer spends hours working on a single transaction. The seemingly inefficient lending process can be vastly improved through digitization.

The Path of Transformation

To automate the lending process is not no easy feat. With that said, however, it is also far from impossible. Some of the more difficult parts of the transformation involve the quality of the software; potential incompatibility of new and old systems; transition costs; and regulatory compliance. But despite the many difficulties, the potential benefits of a fully digitized lending process make the transformation well worth the effort.

Digitizing the lending process will obviously require the creation of new software that is specially designed for the task. This new software must not only answer the present and future needs of the lending establishment but must also intuitive enough to be used with little to no training.

Practical and Functional

In regard to functionality, the software must function as both a storage and analytical tool. Users should be able to save and access data easily through the software’s user-interface. Moreover, it must also be able to analyze the data, so that the critical information relating to the borrower will always be available. For example, if the lending officer needs to view the borrower’s income-to-debt ratio, the software should be able to display this information instantly. If the software is not capable of doing so, then the lending officer will be compelled to either compute the ratio himself or use another piece of software to do it for him. Either way, it will be a massive waste of time and effort. It is much more efficient to have everything in one place.

User-friendly and Intuitive

Additionally, user-friendliness is another important consideration. The software must be intuitive and easy to understand. If it isn’t, the lending establishment will need to incur additional expense in training its staff to use the software. This creates an added financial and technical burden on the establishment, which could have easily been avoided through proper software design.

Flexible and Adaptable

Finally, the software must be designed with the future in mind. It must be designed with future upgrades in mind, so that it can change or adapt readily to the upcoming needs of the establishment.

A fully digitized lending process should allow closed collaboration by all stakeholders: borrowers, lending officers, managers, technical personnel, and the third-parties. It is only when these participants are fully interconnected that the advantages of the software will start to trickle down to the borrowers.

For example, the easier the software is to use, the less time lending officers will spend on encoding or analyzing data. This extra time can be used to entertain other borrowers and thereby increase the profits of the lending establishment. This allows the lending establishment to save on the cost-per-transaction, which empowers the establishment to charge a lower rate for fees, if it so chooses.

The entire lending process normally costs the lender about $7,000 per average-sized loan. A large chunk of that goes to salaries for doing routine work like reading and sending e-mails, monitoring client requests, and receiving and filing paper documents. Most of these costs are passed down as fees to borrowers for the lending establishments to remain profitable.

Investing in digitizing of the lending process can significantly lower these costs by automating routine jobs. Other intangible benefits of digitizing the lending process involve the value-added service that lending officers can further provide to the borrowers. By delegating more of the remedial tasks to the machine, the lending officers can focus on account management, customer acquisition, and other client-focused activities. Hence, productivity can be increased, and costs can be reduced in one fell swoop.

Moreover, the digitalized Lending system can be easily audited. All transactions between the borrower and the lender are automatically filed chronologically, leaving no room for deception and manipulation. This technological ability of the system further paved the way to speed up the lending process. With documented real-time evidences of borrower’s consent and intent to proceed, the loan will go directly into the pipeline for processing. Confusions, miss-understandings and uncertainties are immediately put to end.  

Technical Challenges

Unfortunately, it’s not all sunshine and rainbows. There are also some very serious technical challenges when it comes to digitizing the lending process. The most obvious challenge is data privacy or security.

Data security is a critical concern for any business establishment. However, this issue is doubly true for lending establishments. In fact, one wrong move can spell disaster, especially if it involves a leak of personal or sensitive information, such as the borrower’s social security number.

To address these security concerns, most establishments that intend to digitize their lending process are looking into new technologies like blockchain and advanced security systems. Blockchain, in particular, seems to be gaining increased interest over recent years, especially after it has proven itself in the realm of cryptocurrencies.

Aside from ensuring data security, lenders must also comply with strict banking regulations. One such regulation is the TILA-RESPA Integrated Disclosure (TRID) rule. The TRID rule significantly simplifies the loan process for borrowers. It also requires lenders to strictly track data and to notify borrowers on loan estimates and fees. With the help of modern technology, borrowers are notified promptly and automatically once the lender receives the necessary data. This is a major improvement from the traditional and error-prone system, which relied solely on the technical prowess of the lending officer.

Government Support

Just recently, in early August of 2018, the United States Treasury published a report entitled, “A Financial System That Creates Economic Opportunities: Nonbank Financials, Fintech and Innovation.” This report promoted digitization of the lending process and stressed the need for a special regulatory structure for the same. They emphasized certain issues that need special attention from rule-makers.

All in all, the Treasury’s outlook on regulations seems very promising. It encouraged rule-makers to draft laws that will encourage the development of new technologies that will increase customer satisfaction, make the lending process more efficient, and improve overall security.

Conclusion

With all that said, it is easy to see why lending establishments need to digitize the lending process. Digitization will not only improve speed and efficiency but will also reduce costs. However, a proper balance must still be observed. While a large portion of the lending process may be digitized, lending officers still need to add a personal touch to these transactions for the sake of client relations.

Several steps must be taken and numerous technical challenges must be overcome before the proper level of digitization can be achieved. While the process may be difficult, it is far from impossible. Nevertheless, if the loan and mortgage industry truly intends to improve itself, there can be no better investment than digitization of the lending process.

Are you ready to move on from where you are currently living in? They say that nothing good can truly last forever, and this can apply even to those who are already settled in cozy homes. There may come a time when you will have — or even prefer — to sell your home and move forward elsewhere. Although this is not a decision that anybody can ever take lightly, the same can also be said for those who are on the opposite end of the situation. Looking for and purchasing a home can be among the most important purchases that anybody will ever make. The implications for doing so are huge; there is the prospect of stability and greater control over the lives of those who are looking to buy. Due to the competitive nature of house selling, there is a need for you to provide as much incentives for home buyers as possible.

By definition, an incentive is more or less another term for perks. Some can be quite big and then there are those that are comparatively small. You may have heard about a few truly outlandish stories in your own time, like wealthy sellers that threw in a car along with the house or negotiating with a bakery to provide a year’s worth of cookies to go along with the sale. Those are the ones who tend to end up making headlines; there is no need for you to go that far. Should you have trouble in the selling of your home, there are simpler — and better proven — incentives that you can provide for those looking for a brand new place to call their own in Maryland. Below are a few things that you may want to read about some more:

Incentive for Home Buyers # 1: Interest Rate Buy-Down

Have you ever heard sellers say that they ‘pay points?’ If so, this is exactly what they are talking about. A buy-down is a mortgage financing technique where buyers do what they can to get a much lower interest rate for the first few years of their mortgage. As the seller, it is up to you to provide payments towards a mortgage lending institution, and this will domino into a much lower monthly interest rate for the buyer and a lowered monthly payment as well. The period this would affect will range from the first year all the way up to the fifth year of said mortgage.

With all of that being said, anybody can clearly see how this can be a very attractive option. Buyers will feel a lot less pressure when it comes to figuring out which day they need to lock in the interest rate, which many often cite as a very common and incredibly serious source of stress. It will also send the message that in purchasing your home, they will have beaten the market rate, which is a proud and great statement for anybody to receive. Buy-downs that are seller paid also have the added benefit of being tax deductible for the next time taxes are being filed. You may even notice some cases where the seller is not involved in the least, making this strictly between the buyers and the lenders.

For the seller, the question of whether or not this should be done is a very important question in itself. Your own answer to this may be based on how much it would cost for you to buy the rate down in the first place, as well as how long term your plan is when it comes to keeping the loan. The smart thing to do would be to find a rate sheet that can help you in making a final choice. Take note that a large number of mortgage programs are known to employ a system that allows sellers to pay specific fees in exchange for specified changes in the interest rate, which may be an incredibly enticing thought for some people. Concerning rate sheets, they may look a bit like this:

Interest Rate – Price

•         6.375 percent – 0.375
•         6.25 percent – 0
•         6.125 percent – 0.25
•         6 percent – 0.5
•         5.875 percent – 1
•         5.75 percent – 1.75

Each rate will have its own corresponding price that is displayed as a loan amount percentage. For the example written above, the expected par rate is at 6.25 percent since it possesses an associated price that is zero. Also take note that there isn’t a single specific ratio and it will also vary from bank to bank or lender to lender. It is therefore crucial to find a sweet spot where your rate buy-down is suitably justified by its cost. Keep in mind that you must first do the math and figure out the rate that makes the most sense based on your own long term plans.

Incentive for Home Buyers # 2: Closing Cost Credit

What would you say if someone told you that paying off part of a buyer’s closing cost isn’t as counterintuitive as it may initially seem. Those who look for closing cost credit tend to be first-time home buyers. Some may obtain a FHA loan or a VA loan, which are programs with generous terms that allow people with little upfront reserves to achieve their dream of finally becoming homeowners. Federal Housing Authority loans will require people to shell out a down payment of just 3.5 percent of what they would be paying for the home purchase and Veterans Affairs loans won’t even bother with any down payment in the least.

Many of these buyers may not have the cash needed to pay off closing costs, but it is worth noting how they will vary in terms of the municipality. The better-heeled buyers may also be lacking in liquidity to pay off the closing costs, especially if they have already made the usual 20 percent down payment that is required by typical mortgages. Keeping these type of buyers in mind will give you an idea on which ones are going to be interested in this particular incentive.

It may be in a seller’s interest to include the offer of paying off a certain percentage of the home’s sale price in their home listing. Considering what is now known regarding what different types of buyers may be looking into in terms of options, this would be a strong differentiator that is likely to make your home considerably more attractive compared to the other listings. Should you be going for this incentive, there are some approaches that you may want to take into consideration, such as:

• Going for a bigger purchase price: Agreeing to a higher price is perhaps the most common way buyers can get sellers to agree to paying off a closing cost credit. As an example, should a specific home be listed at a price of $300,000 and its potential buyers will have a figure of 3 percent in the closing costs. By dividing the price of sales by .97, the equal sum would be $309,278.

Buyers would then offer to pay off that amount, contingent on getting a credit that is worth around $9,278. Even with that credit being paid by the seller, they would still net the $300,000. Kindly take note that a major drawback to this approach exists in the form of the buyer’s lender potentially not appraising the home at the higher amount. Should that be the case, sellers would be stuck with a payment that does not include the perk of netting the expected amount.

• Negotiating credit through a fast close: This is yet another popular tactic that buyers can use to get sellers to pay off the closing costs, and this time, it relates to escrow, which is the tense period that is between the contract signing period and the deal’s completion. Sellers would prefer buyers who are both qualified and trustworthy enough in regards to not causing any problems during the aforementioned period. Should a buyer offer to accept the house in its present condition, then the seller may be encouraged to agree to certain credits, which is a small price to pay in exchange for any assurance that the escrow will close minus any tiresome hassles.

• Various other trade-offs: As a seller, offering credit is not always an immediate — or even an attractive — option. Buyers may ask for certain things like halving the home’s down payment or even earnest money, which leaves funds for its closing costs. Another alternative trade off would be asking for a small discount regarding the overall price, which will lead to lowered closing costs anyway. Sellers may not even want to pay off the full closing cost amount anyway, but buyers could still possibly negotiate for a smaller percentage.

Take a look at the pie chart below and see how it sums up the whole topic:

Incentive for Home Buyers # 3: Homeowners’ Association dues credit

Is your home part of a homeowners’ association that comes with monthly or annual charges? If so, then you may recall buying that home some time ago and possibly feeling quite overwhelmed with the immense number of expenses that came with it, which definitely included HOA dues. Fast forward to the present, you can now utilize those stressful HOA dues to your advantage as a seller. How can this be done, you may be asking? The answer lies in the same dread you had years before and what awaits any potential buyer of your home going forward.

If you want to stand out from all other sellers, then you have the option of offering a credit at closing which would cover your buyers’ HOA dues for a specific time period. Said time period can be up to six months, one full year, or perhaps even longer if you so desire. The best way to accomplish this would be to sit down with your agent and discuss this at length. Come up with a solution that benefits everybody and one that offers a maximum lure your potential buyers whilst not running afoul of any particular guidelines for seller credits as imposed by your buyers’ lenders.

Incentive for Home Buyers # 4: The inclusion of Window or furniture coverings

The purchasing of furniture may prove to be a hidden expense to real estate. Some owners may renovate their homes and then choose certain furniture to match the new look. In fact, there are some homes that show so well, buyers end up wanting to not only buy the house, but also all the furniture within. How’s that for a surprising and highly effective incentive? Those who have homes with special and customized furniture may want to include all that as part of the sale offer. As much as you may want to take all of that furniture with you, there is always the chance that it may not really match well with the aesthetics of your next home, so why not strive to make your potential buyers happy and entice them with it? It can serve as a win-win scenario for all involved, making everybody that much better off in the long run.

Incentive for Home Buyers # 5: Pay for appraisals and home inspections

How a home shapes up to expectations is a very important consideration for buyers. Everything may look fine on the surface, but you never know what kind of trouble you may encounter later on once the deal is completed. People need to know as much as possible what they are dealing with. To this end, offering an incentive of home appraisals and inspections can help put your buyers’ anxious minds to rest. Both serve separate yet highly related functions and offering to pay for both is a great way to pique the interest of potential buyers.

Regarding home inspections, the reasons for doing so are quite easy to comprehend. Any house you encounter is bound to have some issue that needs to be resolved. Home owners who do not pay close attention to said issues may find themselves blindsided one day and become suddenly forced into dealing with something terrible. By having the property properly inspected, buyers will be made aware from day one about all the problems that the house comes with. From there, they can make the decision of whether the home is worth it or not. Having a home inspected isn’t just an attractive incentive, it is also an act of responsibility on the part of the seller.

Examples of common problems would be leaky faucets and ripped carpets. Those things are fairly minor and often prove to be nothing more than an annoyance that pops up from time to time. Things to really look out for would be roofing or plumbing issues. Anything that hampers the safety of a home’s inhabitants will also greatly lower the value of the property itself. Speaking of value, this is the part where home appraisals come in.

An appraisal is considered a very vital component of any mortgage lending process, yet it can be endlessly confusing to many home buyers. Questions will be raised, such as ‘is the home’s value truly what is agreed upon between the seller and the buyer?’ and ‘Is it really the tax assessment value, or perhaps it is the price that the home was last sold for?’ Those can only be answered by the unbiased reporting buyers get from appraisals, especially when they are conducted by trained and licensed professionals. The differences between home inspections and appraisers can be quite numerous as well. These would include:

• Inspectors tend to provide buyers with repair cost estimates concerning any known damages or issues that can influence the negotiation of home purchase prices. Appraisers are not known to do this sort of thing.
• What appraisers are, in fact, known for would be checking of prices in various and recent comparable house sales within the same area.
• Inspectors will provide both buyers and lenders with reports that detail all their findings and any repair recommendations, which does not fall into an appraiser’s job duties or responsibilities.
• What does fall into the duties and responsibilities of appraisers would be providing buyers, sellers, and the lenders with reports that will detail how much calculated value the home in question truly and fairly has.

For home sellers, it must be noted that it is the lender that typically arrange for appraisals and it is typical for the buyer to be the one responsible for all the costs. However, if you are to utilize this as an incentive, you may want to know that appraisal fees tend to fall between a range of $450 to $750. The specific costs will depend on where your property is located and how big or small it is.

When it comes to the factors that will ultimately determine your home’s value, the following are particularly notable:

• Any known damage done to the home by termite, water, or mold.
• Whether the furnace remains in particularly good shape or not.
• Whether the plumbing is known to leak or not.
• If the home will require any major restructuring or replacing, like with some houses with roofing issues.

The final step that will be taken will be the issuing of a final report. Both sellers and buyers will want to know things such as the actual and overall size and condition of the home to be sold; comments regarding serious structural problems; permanent fixtures which will include ceiling fans, lights, and plumbing; any renovation details; lastly, there are the comments regarding the home’s surrounding areas, which will include both positive and negative features.

Incentive for Home Buyers # 6: Broker incentives

Lastly, there is the option to go for broker incentives. There are going to be a few savvy home sellers out there that will opt to take a much different route than others, a route that will involve offering to pay for a bonus percentage point. What makes this well and truly different is the fact that the payments are not for the direct benefit of the buyer, but to the agent or broker. This will go on top of all the commission that they will receive anyway. Such an option makes a lot of sense when you take into consideration the fact that the vast majority of buyers these days are already being represented by agents and brokers. By going for this option, you can cut through as many unnecessary and tedious steps as you possibly can.

The offering of a broker’s incentive is both a quick and an easy way to ensure that your home will stand out among all other listings, at least to the agents and brokers whose job it is to place property tours together. Technically speaking, this is not really even an incentive for buyers, but it does more or less the same job of boosting the potential number of buyers who are bound to take a look at what you have to offer. In turn, this will boost the chances of your home getting an enticing offer.

In conclusion, there are multiple and feasible options for you to undertake as a seller if you are truly serious about offering incentives to potential home buyers. There is clear merit in each one and what is left for you to do is just decide on what move you will make next. Before you make a decision, take note of your current assets and what it is you can realistically offer. Keep that in mind as you also take into consideration all of your long term plans. For some people, it may be worth going after just a single of these incentive options, or perhaps it can work best to mix two, three, or even more together. Do not be afraid to experiment; after all, the success of selling your home may depend on what you ultimately choose to do.

If you are planning to buy a new home, knowing your credit score can give a fair idea of how much you can afford, whether you will be eligible for a mortgage, or how much interest rate you will have to pay. All these are directly related to your credit rating, which is one of the primary documentation that determines your creditworthiness. In addition to optimum debt-to-income ratio and financial stability, lenders will review your credit report to determine whether to approve or reject your home loan application.

So, what credit score you should have to buy a new house?

The answer is – it varies depending on the type of mortgage and interest rate you are considering.

Minimum Credit Score Required for New Home Loan

Considering the USA’s current economic scenario, many home buyers are apprehensive about whether they will qualify for a mortgage loan or not. However, for conventional home loans, lenders require a middle FICO score of minimum 620.

• FHA Loan Credit Score Requirement

Don’t have a credit rating of 620?

The good news is that the Federal Housing Administration (FHA) has lower credit rating requirements, approving mortgage even to home buyers who have a poor score. Typically, FHA provides loan assistance to first time home buyers by offering lower down payments. If your FICO score is 580 or more, you can be eligible for only 3.5% down payment on your mortgage loan.

However, FHA also offers bad credit home loans, i.e., offering mortgage loan to buyers who have a score lower than 580. In such cases, as per latest FHA policies, the buyer is liable to pay 10% down payment of the total loan amount.

The objective is to provide everyone with the opportunity to buy a new home, irrespective of their credit background. This is because bad credit does not necessarily disapprove of the buyer’s financial credibility. It may be due to the factors beyond one’s control. For instance, unable to make monthly payments, say from after one year, because of huge medical bills, loss of income, etc.   

Nevertheless, credit score is not the only factor that FHA considers to determine your loan eligibility. Your application for a mortgage loan should be backed by substantial evidence of the current financial condition, reduced debt-to-income (DTI) ratio, number of on-time payments done earlier, and other aspects.       

So, whether you are ready to pay a higher down payment or want to use it to improve your credit report is up to you to decide.

• Other Bad Credit Home Loan Requirements

There are several other banks, financial institutions, and mortgage companies that offer home loans ideal for buyers who have a lower credit rating, high DTI ratios, lack of income proof, or who had a credit event such as bankruptcy, foreclosure, late payments or credit card settlement. They may not qualify for conventional loan products, but have a good chance of getting approved by mortgage agencies specializing in bad credit loans.

For such type of mortgage loans, the credit score requirement will vary based on the loan amount, DTI ratio, and necessary documents available with the buyer.

For instance, if the home buyer is able to provide full documentation as required by the mortgage company, the score eligibility may be 580 and even less. If the buyer provides alternate documents such as 12-months personal bank statement, 1 year tax return and 1 year W-2, the minimum FICO score requirement may be 620 or less.

It also depends on the loan amount you are considering. A minimum of 500 scores is also acceptable if the loan amount is more than $1 million but less than $2 million, has cashed out of 65%, and purchase & L/T of 70%. If you have a debt-to-income ratio as high as 50%, the minimum score requirement may be 620. However, if the DTI ratio is 55% or more, the FICO requirement may be 680.  

The minimum credit score requirement varies from lender to lender and depends on several factors. Often, you may have to negotiate by paying a higher down payment or higher interest rates to secure a mortgage loan with bad credit. It is advisable to shop around to get the best offers.

 

Typical Mortgage Types & Minimum FICO Score Requirements

 As we discussed earlier, the minimum FICO score requirement varies depending on the type of mortgage loan you are planning to have. Here is a brief outline of different standard mortgage types and their minimum score requirements:

• Conventional Loan: 620+
• FHA Loan: 580+ (You can also get approved with a lower FICO, but by agreeing to pay a higher down payment)
• USDA Loan: 640+ (No down payment loan requires a higher score)
• FHA 203K Loan: 620+
• VA Loan: 580 – 620+

To know your credit score or to apply for a home loan with bad credit, talk to an expert today.

How to Get Home Loan with Bad Credit?

Mistakes happen. Maybe you missed paying the monthly payments for your loan, or recently reviewed your credit report and discovered errors. Whatever it may be, you now have poor credit to deal with unless you take steps to improve the same.

Getting a bad credit home loan is not impossible. In fact, there are several lenders who have loan products especially for people with a pitiable FICO score. In such cases, however, the interest rate payable is much higher, or you have to pay a higher down payment amount.   

Thankfully, there are institutions such as FHA who have some of the lowest FICO score requirements, offering loans at 580 with only 3.5% down payment. For a higher down payment percentage of 10%, they approve loans with the score as low as 500. The Department of Veterans Affairs also has low credit score eligibility requirements, offering a little as 0% down payment on the property for military veterans.  

See below to know what options you have:

While there are several new bad credit home loan programs out there in the market, you may also choose to wait and improve your score before actively participating in buying a new home. Discussed here are some excellent ways to improve your rating:

• Pay All Your Credit Card Bills: Sounds challenging, but it is the easiest way to improve your score. Before you apply for a mortgage loan, make sure you pay all outstanding and current credit card bills for at least one year. Recent and on-time payment history holds more value to lenders than a three years old record.

• Pay Your Utility Bills on Time: The objective is to showcase your financial stability to the credit bureaus and the potential lenders. For this, it is vital to strike a balance between your income and expenditure. Create a monthly budget based on what you earn. That will make more sense for you.

• Save More for Down Payment: If you are able to pay at least 20% down, you can get instant approval for your home loan even if your score is wretched.

Today, there are better options than ever for home buyers with poor credit. For a majority of borrowers with lower FICO, FHA is the best bet. And if you are a military veteran or ready to pay a higher down payment, VA loan or Non-QM loans are good options for you.

Getting a Home Loan After Foreclosure

Many people who have gone through foreclosure often wonder whether they will be able to repurchase a home. Yes, your credit report can be badly hit after foreclosure, and you might have to wait long before you can apply for a home loan again. Having said that, there are options to get a home loan after foreclosure; thanks to the less stringent policies issued by the lenders today.

Discussed here are different options and waiting period to get a home loan after foreclosure:

• To qualify for FHA bad credit home loans, you have to wait for three years from the time your foreclosure case ended.

• For Fannie Mae/Freddie Mac loan, you have to wait for seven years after a foreclosure before you can get another loan. However, the waiting time can be shortened to three years if you fulfill the following requirements:

• Provide in writing that the foreclosure was a result of unexpected or adverse situations

• Show that the new loan will be used either to buy your personal residence or for limited cash-out refinance. It cannot be used to buy an investment property or second home

• Highlight that the maximum LTV (loan-to-value) ratio of the new loan is 90% or what is listed in their eligibility matrix, whichever is higher

• For a conventional home loan, the waiting period may vary from 2 – 8 years, depending on the percentage of down payment or a higher interest rate

• For VA loans after foreclosure, the waiting time is two years

Buying a Home After Bankruptcy

To be declared as bankrupt isn’t a death sentence. You still stand the chance of getting a mortgage loan to buy your new home. Follow the below steps:

• Discharge your bankruptcy, which releases your liability from specific types of debts, and prohibits the lenders to take any collection action against you on the discharged debts.

• Rebuild your credit as discussed in the previous sections of this article

• Wait for a certain time span as required depending on the type of loan you wish to apply for

As your creditworthiness improves over time, you can achieve your dream of buying a new home by getting the best loan offers.

Contact an expert today to help you get to buy a new home with bad credit.