The national delinquency rates on home is a number that may not be tracked diligently by real estate professionals. It isn’t as widely tracked as mortgage interest rates, average days to close and housing price fluctuations, but it may offer insight to the health of the American economy.
The Mortgage Bankers Association released the most recent national delinquency rate and it is lower than it’s been in 18 years. According to an article published by the Chicago Tribune, “That’s a big deal, because when large numbers of owners do the opposite – stop paying on their home loans for months at a time — the entire economy feels the effects. Spiking delinquencies in 2007-2008 ushered in the global financial crisis and spawned tidal waves of foreclosures that devastated borrowers and their communities.”
It sounds like it is some great news, but what has caused the number of delinquencies to drop? Perhaps, and most likely, we can thank the underwriting rules that were tightened up back in 2010. Specifically, mortgage lenders are requiring a high FICO score to qualify, avoiding approving mortgages to high risk borrowers more likely to default. These changes, coupled with continued low rates, a healthy economy and a drop in unemployment are helping ensure more home owners stay on track with their payments.
Would be home buyers who have been held back from purchasing a home due to a lack of cash for the down payment may be able to see their dreams become a reality, even without a hefty down payment. Both Freddie Mae and Freddie Mac have introduced home mortgage programs that require as little as 3% down payment.
According to an article published by Fox Business, written by Brittany De Lea, “These new products are designed to compete with the low-down-payment options offered by the Federal Housing Administration (FHA), which offers loans for as little as 3.5 percent down for those with a credit score of at least 580.”
Freddie Mae’s program is named Home Ready and applicants can get approved with credit scores as low as 620 . The program allows parents to co-sign, even if they will not reside at the home. The product is geared toward prospective home buyers in with low to moderate income; both first time and repeat home buyers can qualify for a Home Ready Mortgage.
Similarly, Freddie Mac’s program, Home Possible, serves to offer affordable, low down payment loans specifically to “homebuyers in high-cost and underserved communities”. Either first time or repeat home buyers can qualify, even with credit scores as low as 640.
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Come this July, you may see a boost in your credit score. The three major U.S. personal credit monitoring firms, Experian, TransUnion and Equifax, will be removing some borrowers’ civil judgement and tax lien information from their credit reports.
According to an article published by Fortune.com, written by Kevin Lui, since 2015, these credit reporting firms have been working to correct credit reporting mistakes and removing information unrelated to the borrower’s loan application by omitting information deemed unnecessary to lending. In fact, according the article, “…in 2011 alone, 8 million complaints about wrong information in credit reports were received by the three major credit-reporting firms, according to the CFPB”.
This latest announcement could result in some borrower’s credit scores increasing by up to 20 points. An increase in a credit score can increase the likelihood of securing a loan and is also helpful when applying to rent a home and even can affect future employment opportunities.
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It’s easier than it has been in several years to qualify for a mortgage, thanks to eased credit score requirements. According to a recent article in the Spring Real Estate Guide in the Money publication, there has been a 15% increase since 2014 in the number of refinance applications approved.
Impacting the approval rate is the fact that the average FICO credit score required for a 30-year mortgage has dropped 10 points. In fact, borrowers with an average score of 695 might be able to qualify for a mortgage, which hasn’t been the case for years.
Additionally, those with a higher than average credit score (750-800) might find themselves qualifying for rates in line with borrowers with “excellent” credit (800 or above); the gap in the rate difference might now be close to zero.
More accessible mortgages, coupled with near record low mortgage rates make this an excellent time to secure a mortgage or refinance.
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