May 26, 2016
Potential home buyers should not get dismayed due to the “tight credit box.” Even in this challenging housing market, with loans consistently going to a relatively narrow segment of the market, savvy real estate agents with strong knowledge of the marketplace can meet the needs of potential homebuyers with less than perfect credit. Agents with experience know to look for solutions offered by lenders well-versed on the expanded guidelines of the Federal Housing Administration (FHA), U.S. Department of Veterans Affairs (VA) and U.S. Department of Agriculture (USDA) loans. They are also knowledgeable about specialized programs for borrowers with lower credit scores.
After years of recovery and stabilization, as well as increased demand for housing purchase loans, millions of people who want to buy their home might have difficulty securing the financing they need with today’s lending standards. Understanding the alternatives to conventional lenders and programs can make all the difference when it comes to helping a client secure financing in what may feel like a hopeless situation. The FHA, for example, helps credit-challenged borrowers, particularly first-time home buyers, by setting their minimum credit requirements to as low as a 550 credit score with some lenders. The VA offers help to veterans. Other programs might offer educational tools and services, no closing costs, no upfront financing fees, loans that cover appraisal fees, lender financing charges, or other unanticipated bank costs. Furthermore, some mortgage lenders have begun adjusting their credit standards to meet the needs of borrowers with challenging credit.
Many would-be homeowners find themselves locked out of the “tight credit box” left over from the housing market crisis and the slow economic recovery that followed. According to Urban Institute, “tight credit box means that fewer families will become homeowners at an opportune point in the housing market cycle, depriving them of a critical wealth-building opportunity.” Many lenders and agents are beginning to realize the potential in this largely untapped market of buyers and-and are pressing their advantage.
In addition to looking for lower-credit-score requirements, here are a few other things real estate agents can do that will help clients with challenging credit:
- Familiarize yourself with federal programs and guidelines available to help borrowers get the mortgage they need
- Be knowledgeable about unconventional or alternative lenders, particularly the non-bank and non-prime offerings available in today’s marketplace.
- Seek out lenders who have vast underwriting and servicing loans for borrowers in this category
- Find lenders who offer loans that cover appraisal fees, lender financing fees or other unanticipated bank costs
- For clients with little cash on hand, seek loan programs that provide no closing costs or upfront financing fees
The truth, contrary to reports, is that buyers with a steady income, including those with common credit challenges (or worse), are granted loans in today’s marketplace. The federal government is willing to guarantee higher-risk mortgages, and lenders are aware. Helpful and ambitious real estate agents recognize this as well, and will certainly familiarize themselves with alternatives to traditional financing. It adds to a satisfying mortgage relationships for happier borrowers who are free to purchase the homes they desire, and quicker closings for more content agents.
Head back to Part 1.