Conforming Loan Guide Lines

Credit Guidelines

Lets talk about your credit. A separate section on Credit Repair goes into detail on how to get your report, what credit scores are based on, correcting errors and improving scores. Here we are going to talk about facts, your history as you believe it to be today, and the guidelines that apply to each situation.

Would you rate your credit: Good, Fair, Poor, or Excellent? AND, Why?
Do you know your credit score from all three major repositories: Equifax, TransUnion, and Experian?
Have you been more than 30 days late on your rent or mortgage?
Have you been more than 30 days late on your car payment?
Have you been more than 30 days late on your credit cards?
Do you have any collections, judgments, or liens?
Do you have any bankruptcies, foreclosures or repossessions?
Do you have student loans?
Do you have any debts from a previous marriage?
Do you have four lines of credit that are at least 2 years old?

Credit Score:
Most loans on the market today are credit score driven with the exception of FHA (one of the best loan programs on the market for people with minor issues that lower scores) and a very few non-conforming loans. Credit scores range from 300 to 850. A rule of thumb: The higher your score, less risk, lower interest and less down payment required. Lower scores could require a larger down payment and could have higher interest.

Credit scores are just one factor but here is the basic break down for loan qualification:

A score of 620 and above will get you into a conventional conforming loan with the lowest rates available (Fannie Mae and Freddie Mac). These rates are 1% above the 10 year T-Bill.

In the non-conforming market credit scores will determine your interest rate. You may be in this market for many reasons, not just score. It could be because; your loan amount exceeds conventional guidelines (jumbo), the house does not qualify, no down payment, high debt ratios, credit history issues, or you could be self employed and don't show enough income to qualify.

Credit scores above 620 will get you the best rates in this market which is 1 to 2 points higher than the conforming market, depending on the type of loan you are getting.

Scores from 580 to 620 could put you as much as 3 to 4 points higher in rate, and you can still qualify for a zero down program.

If your score is below 540 you will need at least 20% down and the rate will be 4 or more points higher.

Credit Payment History:
Your payment history contributes about 35% towards your overall credit score but history is also a qualifying factor on it's own. Underwriters look at the last 7 years and if there are no Glaring issues such as bankruptcies or collections or judgments they are most concerned with the last two years. This is what the underwriters are looking for:

Mortgage/Rent:
This has to be your number one priority. If you have been more than 30 days late on your rent or mortgage in the last 12 months you will not qualify for a Fannie Mae, Freddie Mac, or FHA/VA loan. Again, there are sometimes exceptions. If you have a very high score, lots of assets, and a legitimate excuse. If you can't get a waiver for a late mortgage payment there are still loans available to you in the non-conforming market. The interest rate will depend on how many times you have been late.

Car payment/installment loans:
Your history should reflect no 60 day late payments and no more than one 30 day late to get a conforming loan. The non-conforming loans allow these and again the rate depends on how many late payments you have had.

Revolving accounts (credit cards):
You must not have any 60 day "lates" and no more than two 30 day "lates" for a conforming loan. Non-conforming loans do allow them and again the rate is dependant on the number.

Collections, Judgments, and Liens:
Fannie Mae, Freddie Mac, FHA and VA require that all be paid in full and they prefer that they be at least two years old. FHA will sometimes make an exception on the length of time or if they are on a current payment plan in which case all other things must be good. Typically, the non-conforming market does not care if they are paid off or not as long as they do not impact title. Some non-conforming lenders want them paid off if they are over a certain amount. This market is a maze of guidelines and they differ from one lender to another. This is another reason why you always want to use a broker.

Bankruptcy:
Fannie Mae and Freddie require 4 years from discharge date. FHA only requires 2 years and a good excuse, and reestablished credit. Actually, you can Qualify for an FHA loan if you are still in chapter 13 (for at least a year) have been paying on time through the courts, and you get court approval which does happen often!

Non conforming lender requirements vary quite a bit. As a general rule they do want to see reestablished credit unless you are putting 20% down. There are some lenders that will lend with one day out of discharge. Your credit score is very important on these programs. Again, you need a broker to sort out the details for you. Guess what, that's free, and no obligation. They will look at your entire portfolio and if they can't get you in something now, they will counsel you on the steps you need to take to get in a loan later. Be sure you seek out a broker that has ALL the products on the market including FHA.

Foreclosure:
Generally, a foreclosure of your primary residence must be at least three years old and have been caused by circumstances out of your control: such as, death of the primary wage earner, layoff, or long term serious illness. Non-conforming lenders do vary but will normally require a substantial down payment if it is less than 3 years old.

Repossessions:
The guidelines on this are about the same as a foreclosure except that it cannot have a deficiency balance for a conforming loan. The non-conforming market doesn't care about the balance if it is more than three years old and again, their guidelines vary from one lender to another.

Student Loans:
Defaulted student loans will haunt you for the rest of your life. Unless they are re-affirmed or paid off you will never get a conforming loan. However, the non-conforming market generally does not care about them at all except in extreme cases to the tune of $50k or more.

Previous Marriage??:
Be careful here. The conforming market could care less about your divorce agreement with respect to your debt. If you signed, you are still accountable. FHA will sometimes make a wavier if you can show the divorce decree that states it is the other parties responsibility and all other things are good. (these debts will also affect your debt to income unless you can prove the other party is paying with 12 months cancelled checks.) The non-conforming lenders will normally except the divorce decree.

Credit Depth:
Generally this term refers to how many trade lines you have, how long you have had them and their amounts. Most lenders want to see at least a two years history and at least 4 trade lines. Some require one of those trade lines to have had a balance over a certain dollar amount ($5,000). In the non-conforming market these requirements vary between lenders.