In a massive attempt to help the dreams of home ownership become a reality for families across the country, Quicken Loans Inc. announced they have reduced the minimum credit score to qualify for an FHA loan to 580, a significant reduction from the previous 620. Quicken Loans Inc. is the nation’s largest online retail mortgage lender and is among the five largest overall retail home lenders in the United States.
FHA loans are designed to make housing more affordable with lower down payment requirements than conventional loans on purchases. The changes to the minimum credit score means that qualifying clients can lock in a low fixed-rate on a 30-year, 25-year or 15-year mortgage. Additional underwriting guidelines may apply when qualifying for a loan with a credit score of 580, including specific debt-to-income ratios and limitations on the source of any funds used for down payments.
Chief Economist at Quicken Loans Inc, Bob Walters, says, “there are folks who have steady incomes, and a solid payment history but were temporarily affected by the economy or a life event in some way. These challenges can lower their credit score significantly. We believe that a credit score, on its own, is not the sole arbiter of a person’s credit worthiness.” Walters goes on to say, “this change will open up credit to a significant group of people and allow them to again have access to purchase or refinance a home.”
In addition to Quicken Loans Inc., Wells Fargo says it’s accepting FHA mortgages for borrowers with credit scores as low as 500. The move comes after NAR and FHA Commissioner David Stevens, among others, late last year criticized the country’s major banks for requiring credit scores as high as 650 in some cases before making loans. At NAR’s annual conference last year in New Orleans, Stevens said, “banks’ credit policies were out of sync with FHA and artificially restraining home sales by as much as 20 percent of the potential market.”
Under its new policy, Wells Fargo will accept borrowers with credit scores of 500-579 if they put down 10 percent (no gifted funds or down payment assistance allowed). For borrowers with credit scores of 580-599, borrowers must put down 5 percent, with the same restriction on gifts and assistance funds. Borrowers with credit scores of 600 or higher can make a 3.5 percent down payment. This new policy took effect January 15.
I know a lot of the technical things that happen in a real estate transaction can be difficult to follow. If you have any questions about these changes and how they help you as a consumer, whether you are in Richmond Hill, Ga or not, please don’t hesitate to contact me! I can make sense of your questions and concerns!
What are your thoughts about these changes and the efforts being made to help more people own homes?
This blog post written for Teresa Cowart, Realtor in Richmond Hill, Georgia.