First Time Home Buyers with bad credit should know their FICO score early on in the home buying process. This is one of the most important steps when investing in a home. Understanding your FICO score and obtaining a pre-approval letter from a reputable lender will greatly enhance your chances of obtaining loan approval or commitment….Your lender will determine your buying power and maximum loan amount! A mortgage lender will first start with a preliminary credit check. This process could be added to an automated underwriting system to determine any loan conditions prior to determining your buying power. Your estimated loan amount will then be computed based on your credit worthiness.
First Time Home Buyers with bad credit – As a first time home buyer should talk to a mortgage lender or search online for your FICO credit score early in the process. A free credit score can be obtained from www.annualcreditreort.com. This site will provide your credit score and a report for a fee. Many lenders have lowered the threshold for FICO credit scores from a year ago….Now you may be able to qualify for a mortgage loan with a lower credit score. Many potential buyers believe they need near-perfect credit scores to get a home.
However, a large number of first time home buyers with bad credit do not have any idea of the minimum FICO score needed to purchase a home. Buyers usually assume the minimum score to purchase a home is 770 or higher… According to an article in the Washington Post Market Analysis section – The Nation’s Housing by Kenneth R. Harney, a number of statistical samples and surveys were conducted to support the above facts. In the article Mr. Harney writes that in a poll on behalf of mortgage lender loan departments – first time home buyers are uncertain and lack specific knowledge about the current market conditions relative to them qualifying to buy a home.
The current market has lenders reverting back to two old forms of debt ratios to determine a buyers’ actual buying power. Lenders use a “front end” ratio that compares the monthly costs of the proposed new mortgage to your actual monthly gross amount plus other housing expenses with the buyer’s monthly gross income. And, a “back end” ratio that compares all recurring monthly debt, obligations, including housing expenses, student loans, credit cards and the like to a buyer’s gross monthly income.
First Time Home Buyers with bad credit – may not affect your FICO score limits or your debt ratios which may vary with lenders. The FHA average “front end” (housing costs) for purchase loans was 28 percent. FHA “back end” total (recurring debt) ratios averaged 41 percent. Fannie Mae and Freddie Mac loans averaged 22 percent ratios on the “front end”. Fannie Mae and Freddie Mac “back end” ratios was lower at 34 percent.