Why Credit Scores Are Important for 1st Time Home Buyers Loans
If you are searching for a loan to buy a home with bad credit, Nationwide can introduce you to several mortgage financing options. Fannie Mae, Freddie Mac and FHA offer the most popular home buying loans for people with bad credit and no history of making mortgage payments.
1 In 5 Homeowners Would Not Meet Qualification Standards for Mortgage Loans
Beginning January 2014, new standards will go into effect that will require homebuyers to meet certain qualifications in order to get approved for a home loan. This applies to both new home purchases and refinancing. The Qualified Mortgage standard requires lenders to make a reasonable determination of whether or not consumers will be able to repay the loans that they receive. The rule also provides protection to lenders, preventing them from being sued by borrowers who feel that the new terms are unfair.
What This Means For Borrowers
The Dodd-Frank Act requires lenders to verify that an applicant has the ability to repay a loan. This is known as the "ability to pay" rule which lenders meet by verifying eight different aspects of the finances of the borrower. These aspects include:
Income or assets
Monthly payments on loans
Monthly mortgage payments
Mortgage related obligations
Alimony and child support
Debt to income ratio
Although as many as one in five current mortgages out there wouldn't qualify for the new regulations, the new standards are designed to protect individuals from the type of predatory practices that caused the financial crisis in the first place which led to the disaster in the home market and the economy at large.
For interested buyers, this means that an individual will need to take important steps to improve their overall chances of qualifying for a first time home loan. Things like paying down debts in order to reduce the debt to income ratio that individual has and working to improve their overall credit score will play key roles when it comes to qualifying for a loan once these new rules take effect.
One of the most important things to consider is that credit history will be more important once these regulations are put in place than ever before. While lenders always took a close look at a person's credit history and score, they will be looking even closer and will likely have much higher minimum requirements than they have in the past. Fortunately, individuals with less than perfect credit history can still turn to agencies such as the FHA in order to qualify for first time home loans even if they do not qualify for traditional loans from banks and other lenders.
That does not mean, however, that the FHA will also have tighter restrictions in place to ensure that everyone who gets along will be able to pay it back.
First Time Home Buyers Are Eligible for Many Financial Benefits:
* Tax Deductions for Mortgage Interest
* In Some Regions Owning a Home is More Affordable than Renting
* Homeowners Can Earn Equity
* 1st Time Home Buyers May be Eligible for a Tax Credit.
Home affordability recently hit a 5-year low. Even with interest rates on home purchase loans being available near record low, house buying may be still out of reach for many renters in the United States. First time home buying has lost some market-share on purchase mortgage loans in recent years. However with the Federal Housing Administration easing credit requirements, we anticipate more people will be seeking FHA house loans for 1st time home buying in 2014.