Since the beginning of the year, subtle but significant changes made their way into the underwriting guidelines in NC, and credit score requirements have been changing! As we are all learning, each market seems to be somewhat "dis jointed" when it comes to home values, and jobs - therefore we've seen some underwriting guidelines "tailored" to a geographic area.
Credit Score requirements are getting tighter, and this could be triggered by appraisal problems. There are "guidelines" and then there are the "Golden Rule" guidelines. FHA, VA and USDA do not make mortgage loans, they INSURE them (just like a PMI company) in the event of a default. So FHA might say, "we'll insure a loan with credit scores significantly lower than 620," but the BANK (who is actually loaning the money) might not be willing to go below that mark.
Since late last fall, appraisals include distressed sales in comparable analysis to determine value. Many Realtors and lenders were taught that distressed sales are NOT included in calculating the value of a property. Meaning, that if you live in a neighborhood where 3 of your neighbors where forced to sale the home - that lowered price was not used as a comparable to your home. NOT SO NOW, in 2009 we are definitely using those sales, and they are definitely pulling values down.
Recent reports indicate that during the 4th quarter of 2008, properties in NC (for the most part) did not appreciate as much as they did in earlier quarters. Okay, so we're still appreciating, but because we've gone (in general) from 3% to 4% down to 1.5% to 2% appreciation - NC has been put on several of the "watch" lists. This is new for us. California, Ohio, Florida, Nevada, Colorado - these guys have been on the "watch list" for months.
Going back to the "Golden Rule" and how more scrutiny regarding home values in NC might affect credit scores, think about it this way:
If you were loaning our YOUR OWN MONEY for a home in NC...
and you knew that among other things
the TOP employers in our largest City,
Charlotte, are under some pretty serious pressure
(think Wachovia, which was just sold to Wells and BofA)
Would you be a little pickier about WHO you loaned that money out too?
Of course you would!
And so really it's not that surprising. Even though you might be reading posts that say you can get an FHA loan as long as you have a credit score near 580. Well, that is what FHA says, and there are a FEW people who meet the current acceptable risk if they have 580 scores - however, in general, if you are in NC - you need 2 credit scores (at least) above 600 in order to purchase a home. If you have a bankruptcy in your credit background, and want some more information click here.
We are working with folks who need to maximize their credit. Every credit report is like a snowflake - if you've had some credit boo-boo's you can believe they are delicate, and they are different. In general, some of the things we are seeing folks should consider to HELP SCORES are:
Don't take the credit card to get the discount at Best Buy. This is not ALWAYS lowering scores but "third party" credit cards (meaning a card issued by HSBC FOR Best Buy, ditto Macy's, Victoria's Secret, Pottery Barn) are not HELPING your score. These are the cards you want to get paid down to at least 1/4 of the credit limit.
Don't CLOSE your credit card accounts that you are not using without speaking to a mortgage lender who can give you personal advice. Those accounts have credit history and that history might be helping your score.
If you have old collections and serious delinquencies on your file - make SURE you have at least 3 trade lines that are current, at least 12 months of open history and are paid down to less than 50% of the credit limit. Good credit with 2 trade lines is probably not going to get you up over the 600 mark.
These are GENERAL guidelines - but my point in writing this post is this... We all need to be more aware of what our credit scores are. We are going to see TIGHTER guidelines in the near future, and if you want to take advantage of the DEALS that are out there, and the Tax Credit from the Government - you need a solid credit score... and that might take some WORK!
To learn more about writing dispute letters, click here!
If you are considering a home purchase in NC, and would like some advice about your credit and a mortgage loan - please call Steve and Eleanor Thorne, 919-649-5058