What credit score do I need to get a mortgage?

Image ID 1193076 by Stock Exchange user svilen001The minimum FICO credit score needed to qualify for a mortgage changes frequently. As of February 2011, the general answer is … buyers need a FICO credit score of about 640 to qualify for a home mortgage.

BUT…  there are exceptions. Bottom line: if you have a score under 640 you might still qualify for a mortgage, but you’ll probably need more cash on hand.

From Rob Chrisman’s daily mortgage news email…

Wells Fargo reduced its minimum FICO's for FHA loans to below 600. Direct Mortgage Wholesale has done something similar by reducing its minimum FHA FICO to 580 ….  There are other requirements, of course, including 90% maximum LTV, no gift funds, etc.

Deleting the banker-speak, what this means in plain English is that buyers with FICO scores less than 640 probably are going to need to make a down payment of about 10% of the purchase price, and that money cannot be gifted to the buyer.

“Not gifted” doesn’t mean your money is stupid. It just means that the 10% cash down payment has to be the buyer’s own money, and sitting in their bank account for a couple of weeks before the purchase takes place.

Want to see if you qualify to buy a home? Have more questions? Give me a call or shoot me an email and I’ll connect you with one of my favorite loan officers. They’ll hook you up.

Heather Barr, Realtor
Chris & Heather, The Phoenix Agents @ Thompson’s Realty
602-999-8831 voice/text    

read what clients say about realtor heather barr

FHA tightens credit score minimums

By and large, FHA borrowers must now have a minimum FICO credit score of 640.  There are exceptions, especially for borrowers already in escrow with an executed contract and a scheduled closing date…

But the credit tightening that’s hampered the rest of the mortgage industry has now hit the FHA loan program too.

source: Andrew Schmidt and Stephen Rust, The Lending Company, 602-999-1912

FHA loan costs going up Oct 4, 2010

Image ID 1083425 by StockExchange user svilen001 (image credit, StockExchange user svilen001)

There are  changes coming to the FHA's upfront and annual mortgage insurance premiums which are effective on all case numbers obtained October 4, 2010 and later.

The costs of the upfront mortgage insurance premium (UFPMI) and the annual mortgage insurance premium (PMI) are going up. 

In plain English, it’ll be a little more expensive upfront to get an FHA mortgage after October 4, and the monthly payment will be a little higher too. For more technical info, the Mortgage Porter blog has a great run-down on the increase in FHA mortgage insurance premium costs.

If you’re already mortgage and home shopping, you should consider getting your FHA loan started before Friday, October 1. If you’re not already shopping, don’t run out and start just because of this. Just like the $8,000 homebuyer tax credit from earlier this year: don’t buy because of it, but if you’re buying anyway, act now to take advantage of it.

FHA Short Refinance program

The FHA has announced a new program in the ongoing battle to fix the foreclosure crisis.  See details on the FHA website for this FHA Short Finance program for underwater homes.

The main points of the new program -

  • Existing loan to be refinanced is not FHA insured;

  • Must owe more on their mortgage than the value of the property;

  • Must be current on the existing mortgage to be refinanced;

  • Must have a “FICO based” decision credit score greater than or equal to 500;

  • Existing first lien holder must write off at least 10% of the unpaid principal balance (UPB);

  • Loan-to-value (LTV) ratio of no more than 97.75%;

  • Combined loan-to-value (CLTV) ratio must be 115% or less; and

  • For manually underwritten loans, the qualifying ratios can be no greater than 31/50.

Sadly, there are many Metro Phoenix area homeowners who won’t qualify for this program because they’re more than 15% underwater.

update Sept 15, 2010: just heard about another point in this program. To facilitate refinancing, the Treasury Department will provide incentives to existing second-lien holders who agree to full or partial extinguishment of the liens. That's big news! And for some underwater homeowners, making the second mortgage 'go away' might mean the difference between staying in the home or walking away.

Buy for less than you pay in rent?

The conventional wisdom (and a lot of mortgage companies’ advertising) currently says that you can buy a house for cheaper than you can rent an apartment in the Greater Phoenix area.  Is it true? Mmmmm…  Yes and no.

Case in point:


First time home buyer, starter home in the south end of the 85016 ZIP code. House is in good repair but cosmetically it’s stuck in the mid-1950s. Three bedrooms,  1 bathroom, 1 carport, average sized yard, 1100 square feet.

Current rent on 900 square foot, 2-bedroom apartment about 5 miles away from the home noted above = $615. Expected mortgage payment on the new house noted above = $505.

So, yes! You can buy for cheaper than you can rent! Except…

It’s a PITI


When you’re a renter, you pay the rent and then you’re done. But home ownership means extras.

  • P = principle: repaying the mortgage money you borrowed

  • I = interest: the convenience fee for borrowing said money

  • T = taxes: specifically property taxes on the house you buy

  • I = insurance: the lender who lent you the mortgage money will require you to have homeowners' insurance on the property

Back to our Case in Point buyer from above paying $615 in rent and expecting to pay $505 for her new mortgage. The $505 is only PI, and doesn’t include TI or anything else involved in home ownership. Taxes & insurance add another $150 monthly. So rent, $615. PITI home ownership costs, $505+ $150 = $655.

But don’t forget the WUST and the MAINT, two acronyms I made up.


Water, utilities, sewer, trash. Your new house is probably bigger than your old apartment, so you’ll spend more heating & cooling it. What about HOA fees (Home Owners Association)? Factor those in.


Homeowners also face maintenance costs that renters don’t.

  • what if the roof if it leaks? (smallish new roof, ballpark $6,000)

  • A/C and heater systems don’t last forever (ballpark cost $5,000)

  • the cost of keeping up the landscaping. Even Xeriscape yards require a bit of upkeep

  • replacing the faucets when they leak, the toilet flapper if it goes, the appliances when they go, the patio roof when it leaks… you get the idea

Home ownership is a lot more than paying rent. Yes, your new mortgage payment may be less than your old rent. But there are other costs it’s easy to forget about when dreaming about becoming a homeowner.

On the other hand, there’s a big fat tax advantage to being a homeowner: you can deduct mortgage interest paid from your federal taxes. And in your first few years, nearly your entire mortgage payment goes towards the interest you owe, so you can plan to deduct nearly all your mortgage payments from your taxes!

Thinking about becoming a homeowner? Call or email me. I’ve got the coolest little spreadsheet that lets you estimate all your home ownership expenses – PITI, WUST, MAINT and even your negotiables like cell phones, movies & entertainment and groceries -- so you can make a wise decision.

Heather Barr, Thompson’s Realty
602-999-8831 or Heather@ThePhoenixAgents.com

FHA.com is not the FHA

File this in the category of Stuff You Should Know.

The website at FHA.com is not run by the FHA (Federal Housing Administration) or by HUD (Housing and Urban Development) or by any other governmental agency.

It’s run by a (presumably for-profit) group that collects information from users including their social security number, credit information, income & debt information, employment, etc. FHA.com then “shares” that information with “third party affiliates”.

In other words, they’re not going to give you a loan and they’re not the FHA. It’s likely they’re going to sell your information to a loan originator, who will then pester you about mortgages.

FHA.com does disclose this information.. . . .

We are not the FHA. They insure the FHA loans that our lenders assist people in getting. If you need to contact the FHA directly, you can do so at:

US Department of Housing and Urban Development
451 7th Street, S.W.
Washington, DC 20410

. . . ..but this disclosure is buried pretty far down in their page structure. Nice how they don’t list a phone number or website link. I will. You can reach the FHA by telephone at (800) CALL-FHA or (800) 225-5342, or online at fha.GOV

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90 Day Fix and Flip Rule

You know how fix and flipping works in a cynical world, right? Basically. . . . investors buy a craptacular house at foreclosure auction or elsewhere and do no substantive repairs. They slap a thick coat of paint on everything and install cheap new carpet, then resell it as "Remodeled!" with a seriously  jacked up price.

Traditionally, the FHA had a rule in place stating they would not fund buyers who were purchasing a property the seller owned for less than 90 days. This was designed to protect buyers (and the government backed money they used to purchase) and discourage excess profiteering by fix and flip investors.

Some weeks back, the FHA reversed themselves in this area by announcing a new policy that's generally known in the industry as "The FHA Flipping Waiver."

FHA changed it's policy to help the market in clearing some of the excess foreclosure properties for sale which are often holding down pricing at artificially low levels. I don't know how it worked around the rest of the country, but my opinion is that Fix and Flippers are basically, usually helpful here in metro Phoenix Arizona.

Lenders reserve the right to have additional regulations, above and beyond what FHA guidelines say. It's taken some time for these lender 'overlays' to shake out into a coherent whole but it has finally happened.

What the Heck Does this Mean to Me, A Buyer?

The general rule of thumb if you're shopping for a home and you're looking at fix and flips is this:  you won't be allowed to use an FHA mortgage to buy if the seller of the home you love has

  • Owned it for less than 90 days AND

  • Has jacked up the price more than 20% over his/her purchase price

  • Also, don't have any sort of pre-existing relationship between yourself, the buyer, and the seller

If the investor has owned the home for less than 90 days and it's priced 20% or more over the investor's purchase price, you could potentially still buy the home, but you can't use an FHA mortgage to do it. That means a 'conventional' mortgage, which means a higher down payment than the FHA 3.50%. Plan on 10% to 25% cash down payment if you want that spruced up fixer flipper home.

FHA Defaults: Maricopa County only 49% worse than national average

Neighborhood Watch.  I found an interesting website, called Neighborhood Watch and maintained by HUD, which allows users to slice & dice HUD (and FHA) data in a variety of ways.

Here are some ‘tip of the iceberg’ examples:  (click any chart to enlarge)

How does Maricopa County compare with the rest of Arizona?


Hmmm.  I kind of expected Maricopa County to be far worse than Arizona as a whole..

How does Arizona compare with Colorado – another state of similar size, with almost the same number of FHA loans, in the same part of the country, with borders that actually touch?


Twice as bad – that sounds more like it.  Or at least more like what I was expecting to see.

And now back to this article’s title – how does Maricopa County compare with the United States as a whole?


I guess the national average also has California, Florida, and Nevada pushing it up, but I expected the difference to be more like the AZ-CO numbers…

You can actually do comparisons for different metrics, and drill all the way down to the zip code level – a pretty neat toy for a number-cruncher!

Mortgage Lender Comparison

The Neighborhood Watch website also allows comparisons by lender, in addition to by region.  “What’s the importance of this?”, you might be asking..

Calculated Risk ran a story this week showing HUD is starting to go after specific lenders with significantly higher than average default rates in their portfolios.  They’ve identified 15 lenders for their initial probe.

Your hoping HUD is able to prove fraud Realtor,

Chris Butterworth

Is That Condo FHA Approved?


Buyers using an FHA mortgage who are shopping for condos (or patio homes, or townhomes) need to be aware there's a list of FHA-approved communities. If the community is not on the FHA-approved list, your FHA mortgage money might not be good there.

Bookmark this website and check for FHA-approved status before you fall in love with something you can't actually buy. And keep an ear to the ground for anticipated changes to the FHA mortgage program. Most watchers expect higher down payment minimums, decreases in allowed seller concesssions, costlier mortgage insurance, and tougher credit score requirements. Our blogging lender friend Justin McHood writes about expected FHA rule changes on his Arizona Mortgage Team blog.

Need help? Want advice? Call or email me anytime. I do lots and lots of condo shopping with my buyer clients, all over the Northeast and Northwest parts of the Valley. From downtown Phoenix & Old Town Scottsdale all the way up to Desert Ridge, Peoria and Cave Creek, if it's a condo, I've probably seen it.

The End is Near for the $8,000 tax credit

Most lenders are taking upwards of 40 days to close an FHA loan, which most first-time buyers are using.  Today we’re 39 days away from November 30th – the date by which a first-time buyer must CLOSE on his/her new home in order to receive their tax credit.  Adding in a couple extra days for the Thanksgiving holiday weekend, and figuring overworked & overwhelmed lenders (and title companies) will get a little backed up next month, and…

Well, let’s just say it’s very unlikely that potential buyers out there who aren’t under contract yet will be able to take advantage of the $8,000 tax credit.

The good news is the tax credit should not be your only reason, or even your primary reason, for buying a home.  You should be buying because of your specific circumstances, maybe coupled with today’s low prices and interest rates, with the tax credit just being gravy.

The bad news is missing the tax credit stinks.  There aren’t too many things better than getting an $8,000 check from the IRS!

Our advice remains the same as it’s been all year:  Don’t buy the wrong house because of the tax credit.  But if you find the right house & were going to buy it anyway, try like hell to get it done before November 30th!

Your looking forward to catching up with tax credit clients next spring Realtor,

Chris Butterworth

How Much for Closing Costs?

I asked one of our favorite lenders the question many, many buyers are asking their Realtors: “How much do I need to cover closing costs?” Here’s his answer.

Purchase PriceAmount to Cover Closing Costs
$75,000 - $100,0006.00%
$105,000 - $145,0005.00%
$150,000 - $185,0004.00%
$190,000 - $255,0003.00%
$260,000 - $305,0002.50%
$310,000 - $359,0002.00%

Chart courtesy of Andrew Schmidt of WJ Bradley Mortgage Capital Corp.
You can reach Andrew and his team by phone at 480-621-4300 or 4324.

Here’s a slight hitch in  your giddyup: most banks will flat out refuse to contribute more than 3.00% towards the buyers’ closing costs. Which is a shame because a lot of cash-strapped first time homebuyers are shopping for homes in the under-$150,000 range.

We know a few tricks to soften ‘em up though.

If you’re a homebuyer who’s Realtor shopping, give us a call. We’ll tell you how we work, and you can decide whether you’d like us to represent you, or if you’d like to use other Realtors. Not ready to commit to a phone call? Read on, click around, you’ll get a feeling for how we work & who we are. When you’re ready, we’ll still be here.

$8,000 Tax Credit – Timeline for last chance

Heather recently reminded us the $8,000 tax credit for first-time buyers is currently set to expire on 11/30/2009.  This means you need to CLOSE ESCROW, with a HUD-1 Settlement Statement showing your closing date, by November 30th.


Photo credit to Stockxpert Woodsy.

Let’s work backwards from there to see when you need to be under contract on that new home you’re going to buy..

A typical escrow period is 30 days, meaning it generally takes 30 days from the time a contract is accepted until the escrow closes and the new owner takes possession of the home.  Therefore you’ll want to open escrow by October 30th in order to hit your deadline, right?

Well, lenders are busy right now, and FHA appraisers are even busier.  Most lenders we’ve worked with are recommending 40-45 days as a safer bet.  Hmmm, that puts us back to Mid-to-late October.

Personally I foresee a couple of speed bumps ahead:  Thanksgiving Weekend (with mortgage companies not open and individual lender-employees taking personal time off for travel/company), and a HUGE NUMBER of loans all trying to close at the same time (in order to hit the tax-credit deadline.)

Because of these obvious speed bumps, I’d recommend having a 1-2 week buffer in there.  That pushes our timeline forward to early-to-mid October for a safe contract date.

Now add in the fact that many homes in the first-time buyer price ranges are seeing heavy competition with multiple offers, and that many first-time buyers are having to write offers on multiple homes before getting a contract accepted, and the timeline gets pushed forward even further.

Basically, if the $8,000 tax credit is of primary importance in your reasoning to be buying a home this fall, you should be out looking at homes and ready to make an offer… NOW!  (or at least Very Soon!)

Your helping as many first-time buyers get free IRS money as he can Realtor,

Chris Butterworth

$8,000 Homebuyer Tax Credit Ends Soon

Money Grabber by woodsy, image ID 1066491Image courtesy of StockExchange user woodsy

Don’t miss out on your chance at the US Government’s stimulus money!

The federal government’s $8,000 tax credit to first time homebuyers is slated to end on November 30, 2009.

There’s talk it will be renewed & extended, but nothing concrete yet.

Contrary to The National Association of Realtors’ commercials, now is not the “perfect time” for everybody to buy a home.  But if you’ve been thinking about it, give us a call. We’re happy to talk about your unique situation and whether it’s a good time for YOU to buy a home, without trying to ‘sell’ you. Many of our recent first time home buyer clients have mortgage payments that are less than their old rent payments.

To be eligible for the tax credit you must:

  • Not have owned a home during the past three years

  • Have modified adjusted gross income of not more than $75,000 (single) or $150,000 (married filing jointly)

  • Use the property as a primary residence

The amount of the tax credit is equal to 10% of the purchase price of the property, and cannot exceed $8,000.  The tax credit does not have to be repaid. (info courtesy of uber-cool lender Mike Moshofsky at PrimeLending, available at mmoshofsky@primelending.com and  480-346-8383)

August 25 - edited to add: News is starting to trickle off The Hill in Washington, D.C. that the tax credit is likely to be extended. The Washington Post wrote about the $8,000 home buyer tax credit on Saturday. Their reporter says (emphasis mine, not the WP's):

Bills already are pending in both houses to extend the credit for another year.

Senate Majority Leader Harry M. Reid (D-Nev.)  ...reportedly now favors an extension of the credit.

Sen. Christopher J. Dodd (D-Conn.), chairman of the Senate Banking, Housing and Urban Affairs Committee  ... is co-sponsor of a bill with Georgia Republican Johnny Isakson that would raise the credit amount to a maximum of $15,000. Meanwhile, the Realtors and the builders are pushing not only for extension of the credit, but for broadening it to cover all home purchases in 2010.

Stay tuned! When we hear the tax credit has been extended, expanded or anything else, we'll report it here.