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Great Post - Prospect Mortgage Drops Minimum FICO Requirements on FHA Loans

Prospect Mortgage Drops Minimum FICO Requirements on FHA Loans

I'm sure most of you have heard about lenders dropping their minimum FICO requirements on FHA loans to anywhere from 620 all the way down to 500.  While this is great news, it is not as simple as many think.  The lower the credit score the more stringent the guidelines become.  Prospect has lowered theirminimum FICO requirement to 580 for now, but here are the key points to remember in regards to responsible lending that are specific to the sub 640 FICO lending.

Guideline Highlights

  • Single Family and 2 Unit OWNER OCCUPIED properties ONLY (no 3 or 4 Units)
  • 2 Unit properties- must qualify WITHOUT rental income on second unit being considered
  • Any collection (excluding medical) over $1000 must be paid prior to closing
  • 12  Months DOCUMENTED ON TIME rental payments must be provided
  • Non-Occupant co-borrowers are allowed but are limited to 90% Loan to Value
  • FHA Home Buyer Counseling is required on ALL loans
  • 2 Months Reserves required (after closing)

Required Savings Ability

One of the major changes for the Sub 640 Product is that borrowers must demonstrate an ability to save a minimum of 6 months of net housing increase (if any exists). Example:

Current Rent $1000
Proposed Housing PITIMIHOA* $1200
Payment Increase $200
Required Savings (in addition to 2 month reserves) 6X$200=$1200

*(Principle Interest Taxes Insurance Mortgage Insurance and HOA dues)


Thoughts

Many times borrowers go through rough patches that are temporary, but that take major tolls on their credit.  Once they have demonstrated that they are back in afinancially secure position they should be able to purchase a home. Additionally, the current credit scoring system is extremely flawed and borrowers should NOT be punished for this.  While I am not for a return to full blown SUB-PRIME lending, I am happy to see the guidelines loosening and programs opening back up to a morecommon sense style of lending.

Please contact me for any questions regarding this program at kpentz@prospectmtg.com.

Be good to each other and have a GREAT week!

KP

Link to original post:  http://activerain.com/blogsview/2137440/prospect-mortgage-drops-minimum-fico-requirements-on-fha-loans

 

 
 
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1 comment • Kathleen Cooper, RE/MAX,Broker, REALTOR® • February 17 2011 12:18PM