Learn what it takes to get into a house in todays market.
We all know your credit report is very important in the decision making process for loans. With the current tightening up in the lending arena, one might ask yourself what is required to buy a house in today's market? During the last 7 years buying a house was fairly easy for just about everyone. The rates were incredibly low and they currently still are. Here is what banks are currently looking for to get you in a house. I will talk about two of the most popular loans, FHA and Conventional. Most of the creative financing that has existed over the years is gone; we are going back to the plain old vanilla loans.
Conventional Loans
Conventional loans are loans that are secured by government sponsored entities such as Fannie Mae and Freddie Mac. This type of loan is usually used for the following type of loans:
a. Purchase
b. Refinance
The current loan limits for conventional loans are $417,000. This particular loan is riskier for banks and requires good credit. This type of loan is run through either Freddie Mac or Fannie Maes automated underwritten engines. All banks use this software to determine whether you are approved or not. This loan typically requires a little money to get into a home, and is for good credit borrowers. Here are the determining factors from your credit report that these engines take into account.
1. Your Credit Score
2. Employment history
3. Time on Job
4. Payment history
5. Debt to Income ratio
6. How much savings do you have
7. How much revolving credit do you have and for how long.
FHA
FHA loans are loans that are insured by the Federal Housing Authority, which is an entity of HUD (Housing Urban and Development). This loan is less risk to the banks, and has a lot of benefits when coming to your credit report history. Here are the benefits.
1. No credit score requirement
2. Low down payment (3%)
3. Easy credit qualifying
Here is what FHA typically looks for to get you into a house.
1. Clean 12 to 24 month history
2. If you have no credit, FHA will allow alternate lines of credit, such as:
a. Letters of payment history for the last 12 months in good standing from the following:
1. Electric Company
2. Water Company
3. Cable Company
4. Day Care
5. Child support history
6. Cell Phone Company
This loan also requires good rental history, you don't have to have it, but if you have credit issues it's typically required. When applying for a FHA loan, you probably should get a current copy of your free credit report and do some research. FHA is a loan that is less harsh on your credit, but you need to show at least 3 source of credit reporting in good standing. Having late payments on your credit report during the last 12 to 24 months is sure way to get denied. Get a copy of your free credit report today.
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