[loristlmo]

I'm fairly new to the site... I currently have a credit score of 525. Will I EVER qualify for a home loan? I am a 1st time buyer with a yearly income of around $42,000. I have also been on my job for 8.5 years.:confused:

[Fr_Chuck]

Hello, I moved your post from the "introduction" area to the Mortgage area.

Please come back to the intro area and introduce yourself.

Ok, you have a low credit score for a reason. You have not paid back people on time or done something.

So you need to clean your credit up, if you owe people, pay them on time.
And over enough years, it will get better, Start saving money up for a down payment, get around 20 percent saved up,

By the time you have done that, you may have cleared your credit up enough

[RickJ]

Of course you want to do good things to get that score up, but the truth is, you probably CAN get a mortgage - but the rate and term will not be as good as if your score is higher...

Try to reduce your expenses and use your income to pay stuff off to get that score up.

[wildcatgirl]

I am not a mortgage specialist--but, I do work with banks everyday in the car business, and I am pretty familiar with different mortgage programs that are available. I agree with Rick and Chuck that getting your score up will greatly help you in qualifying for better rates. But, there are first time programs that are available such as FHA and Fannie Mae government driven mortgages. Here is a link that will take you to the Fannie Mae foundation's website. http://www.fanniemae.com/index.jhtml You will find that there are many lenders that write and service Fannie Mae loans (Fifth Third bank is one of the big ones in my area). Now, although there is a lot more to credit than just the score (one would have to see all the trade lines and how they were paid) I have seen people qualify for mortgages that I either couldn't get approved for a car, or had a really hard time with it. Most of that is because of the loan-to-value that they bought the house for. The house was either sold below market value (which is possible now, because it is a buyer's market) or because the lender felt the home was in an area that was increasing in value every year more so than others. Just make sure that you don't get in over your head. If you can't afford to pay your bills AND set money aside every month that you would feel comfortable paying a mortgage on, then you're probably looking at too much house.

[ScottGem]

It might have helped if you explained WHY your credit score is low and where you found out what it was. A 525 is not prohibitive score. You shouldn't have a problem getting secured debt (like a mortgage) with a score like that. However it will cost you. The good news is, that you should be able to refinance at a lower rate after a few years of working to build up your score.

A key is going to be your equity. The more you can put in as a down payment, the better deal you can get. So you have to be VERY careful that you don't buy more house then you can afford and you buy one that will appreciate in value quickly.

[Dr D]

With a 525 score, the probability of securing a Government loan (FHA or VA) is next to zero. The best that you can hope for is a sub-prime loan, with a high rate, costs, and a prepayment penalty. I agree with the previous posts that your best bet is to determine the causes of your low score, and go about fixing them, before you buy a home. Unless you are getting a smoking deal on a house that you just can't pass up, it is better to wait.

[walt17]

Look for a realtor that specializes in foreclosures, especially VA. The house would then already be guaranteed by someone else's VA eligibility. And it will probably be available at below market value. Thus your chances of getting approved are better. (Not guaranteed.) Depending on where you live, there are some good homes in good areas in the foreclosed listings.

[Dwight_Pigg]

I'm fairly new to the site.....I currently have a credit score of 525. Will I EVER qualify for a home loan? I am a 1st time buyer with a yearly income of around $42,000. I have also been on my job for 8.5 years.:confused:

Over the past year, I have have closed several FHA 97% purchases with credit scores in the 510 to 530 range. The buyers were required to pay off any collections that were less than 24 months old. The money to pay off the collections and for the 3% downpayment, can come from a gift, as long as it is documented.
One of the keys in these loans were borrower reserves (401k, IRA, etc). If you have been on the job for 8.5 years, I would hope that you could show some 401k reserves.
Job time and reserves are HUGE compensating factors to FHA.
FHA will also allow the seller to pay up to 6% in closing costs. You could actually buy with 3% down and no other out of pocket.
All of this with a 30 year fixed in the mid 6% range.
Definitely buy less than you can afford and make sure to pay on time every month. Your score will go up considerably over 24 months just by adding a good mortgage history.

[Dr D]

Dwight- I am truly surprised by your answer. It has probably been over 2 years since I have done an FHA loan in Phoenix, because the rapid appreciation has priced FHA somewhat out of the market. Were you able to get Desktop Underwriter to approve the loans, or were the loans manually underwritten? My recollection of a sign off by a single DE underwriter is about 585 FICO, and perhaps 550 for a regional underwriter. Perhaps things have changed recently, or your local HUD authority is more lenient than Phoenix. Inquiring minds want to know.

[Fr_Chuck]

While of course the various FHA distrcts have some varibles, the 97 percentage would have to be a home selling for less than FHA appriased value, and at least locally a credit score that low would not meet local standards here according to our real estate instructor.

There was also some debate over the interest rate, since it appears to be much higher for poor credit rating, at least currently

[Dwight_Pigg]

Dwight- I am truly surprised by your answer. It has probably been over 2 years since I have done an FHA loan in Phoenix, because the rapid appreciation has priced FHA somewhat out of the market. Were you able to get Desktop Underwriter to approve the loans, or were the loans manually underwritten? My recollection of a sign off by a single DE underwriter is about 585 FICO, and perhaps 550 for a regional underwriter. Perhaps things have changed recently, or your local HUD authority is more lenient than Phoenix. Inquiring minds want to know.

Many of the loans that have closed received a Refer/Eligible. They then were manually underwritten. I would like to stress again that compensating factors are always HUGE in these lower score borrowers. I have also received some Approve /Eligible DU results. There is no rhyme or reason to it. They don't all go FHA, but many of them do!

I too was under the impression that borrowers needed to be in the 580 range, but after some very DRY reading of the FHA lender guide I found that it specifically states that there is no minimum credit score requirement.

Every borrower that has low scores, good ratios, and some reserves, gets submitted to FHA by my company and we have found that it is truly all about compensating factors.

The most recent example of an FHA loan that I closed: 523 middle score, 10 years on the job, $67,000 annual income, $25,000 vested in a 401K. The purchase price was around $180,000. Of course ratios cannot exceed FHA maximiums. In this case, I believe that they were about 8% below. This one got a refer eligible and the borrower was required to submit a letter of explanation about some old lates. The letter was acceptable and the loan flew right through.

I didn't address values in my earlier post, but I would assume that a borrower who makes $42,000 per year would not be looking in a price range that was above FHA guidelines. I understand that many areas have been priced out of the FHA market. Interestingly, I am currently working on some larger loans in Maryland and Georgia. They are both are good sized loans and are under FHA limits for those particular areas.
It appears that FHA is making some max loan adjustments in response to the increase in values.
The company that I work for closes several million in FHA loans every year and we lend in 23 states. We are experiencing similar results with the 95% FHA refinance loans as well.