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Understanding Mortgage Realities in the Current Market


For both buyers and sellers it can be extremely important to make sure you have the right information at hand. In the current market information can become outdated quickly and misinformation can make a significant difference for both parties. Whether you are buying or selling a home, it is important to make sure you have all of the facts straight.

Qualifying for Home Loans with Bad Credit

It is true that the guidelines for issuing mortgages have become quite stringent in just the last few years in light of the housing crisis, but in some cases it is still possible to qualify for a home loan even if you have bad credit. Once the housing bubble burst, FHA made it a policy of only making home loans to buyers with credit scores of at least 620. Recently; however, an announcement was made that FHA has now lowered the minimum FICO requirement to 580. As a result, even buyers that have some flaws on their credit reports can now qualify for a home loan.

You should keep in mind that your ability to qualify for a home loan isn't the only thing that is impacted by your credit score. The amount of required down payment is also affected by your credit score. So, while you could get by with a down payment of just 3.5% with a credit score of 620, if your credit score is lower than that you will be looking at a down payment of between 5% and 10% (Read our Tips to Improve your Credit Score) .The reason is that lenders want to make sure you have a more significant investment in the purchase of your home if you've had credit problems in the past. A higher down payment reduces the chance that you will default on the loan later on.

Refinancing your Home in the Current Market

There is a common idea that in order to refinance your home you must have equity in the home. It is true that if you are severely underwater on your home or if you owe more on the mortgage than the home is actually worth, you likely will not be able to refinance. There are some situations in which you may still be able to refinance your home even if you are upside down on it. For instance, if Freddie or Fannie holds your loan, you may be able to refinance through them for up to 125% of the current value of your home. Of course, you must be able to qualify for the loan. What this means for you is that if your home is worth $200,000 then you could potentially refinance it for a loan of $250,000.

For homeowners whose home mortgage loan is not held by Freddie or Fannie, there is yet another option. The Short Refi program through FHA is available only to homeowners who have remained current on their mortgages. Through this program you could potentially refinance up to 115% of the value of your home. So, if your home is worth $100,000 you could possible refinance through this program for $115,000. Don't make the mistake of assuming that simply because you have no equity in your home, you cannot refinance. The ability to refinance your mortgage loan can often provide just the breathing room you need to avoid potentially losing your home.

Modifying your Loan

While loan modification problems have been touted since the beginning of the housing crisis, until recently most homeowners found they were typically unable to qualify for a home mortgage loan modification unless the circumstances that had resolved their economic hardship had been resolved. In other words, if you suddenly found yourself without a job and were not able to make your mortgage payments, you had very little recourse open to you. This is because most lenders have made it a requirement to be able to document income before they would agree to a loan modification.

Fortunately, today many of the areas around the country that have been hardest hit by the economy and the housing market are seeing some relief. The Hardest Hit Fund was allocated by the US Treasury Department to the tune of $7.6 billion for certain states in order to provide mortgage payment assistance for up to 36 months for homeowners who are unemployed in order to assist them in avoiding foreclosure. States covered by the fund include Alabama, Arizona, California, Florida, Georgia, Illinois, Indiana, Kentucky, Michigan, Mississippi, Nevada, New Jersey, North Carolina, Ohio, Oregon, Rhode Island, South Carolina, Tennessee and Washington D.C.


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