Minimum Credit Requirements for Mortgages

If you are one of the many who are working diligently to restore your credit, it may have just become a bit more difficult to qualify for a mortgage. Last week Fannie Mae, the government sponsored agency that funds and purchases mortgage loans, announced to it’s lenders that it will begin requiring a higher credit score requirement for individual loans. While Fannie Mae did allow that some lower credit loans will be considered on a case-by-case basis, the new “floor” for credit is 580. In other words, if you don’t have a score above 580 don’t bother applying. While they claim they will consider files with lower credit ratings my anticipation is that individual lenders will not bother themselves with these files.

In addition, if you are recovering from a foreclosure it is also more difficult to qualify for a mortgage. Fannie Mae also reported that it will increase the minimum time requirement after foreclosure from 4 years to 5 years, meaning that if you now need to wait 5 years from the discharge date of your bankruptcy, if a foreclosure was involved, before applying for a new mortgage.

In October of last year I posted strategies for credit improvement. My four part posting was actually the test of a special report that I had written previously for members of my Inner Circle. You can find the first part of the report here: http://utahloanexpert.blogspot.com/2007/10/credit-repair-step-1.html

As always, if you would like the full report just email me at jayhart@cottonwoodmtg.com and I will send it your way. And, as always, if you would like to join my Inner Circle and receive periodic newsletters and special offers you can email me or call me at 801-256-0904.

Buying Foreclosed Homes in Utah

Last week I had two separate people tell me they were looking to buy foreclosed homes. They both told me that since they had heard it was a buyers market they wanted to take advantage of the steep discounts that are available when a foreclosed home is purchased. Now, I realize that just last week I discredited those who claim that the Utah Housing Market is a “Buyer’s Market” but I cannot claim that there are not tremendous deals to be had, nor can I say that purchasing a home from a foreclosure sale isn’t a good option to consider.

With that in mind, here are some things to remember when considering a foreclosed home.

1. Use a Realtor, not and Auction.
   

The process of purchasing a home from an auction has become increasingly competitive. With various Real Estate Investing Programs and Coaches out there more and more people are turning to auctions. That means that home prices are being driven up. To make things worse, in most cases you are not allowed to inspect the property prior to making your purchase, which means you could be walking into a much more expensive project than you anticipated. The most successful Real Estate Investors and Purchases that I know are not using Auctions.

To be honest, the best values rarely sell through an auction. In many cases a bank or mortgage lender, realizing the difficulty with getting what they determine to be sufficient offers, will hire a Real Estate Agent to market and sell the property. In many cases the lender will repair the major problem areas before selling the home, meaning that while you may pay slightly more, you will also have less to do once you move in.

2. Know what the Home is worth, according to Experts.
   

The best determinant of value is an appraisal. Costing between $350-$400 a full appraisal will give you extremely detailed information regarding the home, it’s sales history, and comparable properties. When you get your financing an appraisal will be required, so it may not hurt to consider investing a small amount up front if you are serious about a home.

Another benefit for using a Real Estate Agent is the ability that he or she has to help you determine value. Many agents have software that provides data similar to that of an appraisal, which means you can get a good idea of the value of comparable properties before making your offer. While my experience has taught me that Real Estate Agents tend to be optimistic concerning the value of a home, I have also learned that a good Agent can give me tremendous information to guide my search.

3. Don’t overpay
   

The main reason to consider a foreclosed home is to get a low purchase price. Keep that in mind when making your offer. Remember that, unlike a more traditional sale, the owner of a foreclosure is not emotionally attached to the value of the home, which means you don’t have to deal with the unrealistic expectations that influence so many of our thoughts when valuing our homes.

Remember also that the Bank or Lender probably has an ever increasing number of foreclosed homes to sell. Adding to the fact that you may very well be the only potential buyer for the home you are considering, it is important to keep in mind that they probably want you to purchase the home more than you would like to buy it.

The first time I bought a home after a foreclosure I made an offer that I felt was appropriate. My offer price was validated by a qualified Real Estate Agent as well as a licensed Appraiser. I took into consideration the costs of updating the home as well as the value that I could anticipate upon completion. The bank sent me a counter offer that was significantly more than I felt the home was worth. Realizing this, I simply said “no thank you” and continued my search. Nearly one year later the same home was still available, so I made a second attempt, this time at an even lower price. This time around the bank jumped at my offer.

If you are considering purchasing a foreclosed home, remember the three keys I have outlined and then enjoy the process of searching for and negotiating the right deal. As always, if I can help, call me at 801-256-0904 or email me at jayhart@cottonwoodmtg.com