- Government-backed loan requirements (FICO credit score, % down, debt to income ratio, cash reserves buyers need on hand, etc.) have not changed
- Some lenders have changed their requirements on their own due to the current state of the market
- Amerifirst has not changed its requirements on government-backed loans (FHA, VA, USDA)
Lenders are telling the REALTORS® whom they often work with that the government minimums have changed. They say something like, “new FHA guidelines require a minimum score of 670 for all FHA loans.” This is NOT true. Before we go any further we need to establish one very important fact… to date, the government has not changed any of their minimums, (like FICO credit score, % down, debt to income ratio, cash reserves buyers need on hand, etc.) at any point during recent times. They remain, today, what they were three weeks ago or even three months ago.
Here’s the truth, many lenders HAVE changed their loan policies or are in the process of doing so currently. Not the government, but the lenders are doing this. Each bank does so individually (as is their right), not the industry as a whole. Some are altering how they conduct government-backed loans, some are changing policies on conventional loan products, and others are standing pat and haven’t adjusted any of their policies yet.
With FHA, USDA, or VA loans the various government departments set the MINIMUM GUIDELINES. In other words, they set the “low-bar.” No lender who wants their loans insured by the government institutions that offer these products can go below those government guidelines. However, that doesn’t mean that each lender cannot set their own bar higher than those minimums.
The government loan programs like FHA, USDA, or VA have traditionally been viewed as higher risk investments by the banks and the large institutions that buy the bundles of loans on the secondary market. Those loans require less money down, some of those who use these loans would not qualify under stricter conventional loan policies, and the historical default rates are larger. Due to these risks, banks hedge their bets in a variety of ways. A few examples are: higher interest rates, possibly higher closing costs to the borrower, or things like primary mortgage insurance (PMI) programs that would offset losses from foreclosing.
Institutions that are now raising their minimum guidelines for borrowers to qualify for these government loans are signaling that they predict trouble on the horizon. They are hedging their bets against if the economy worsens even more from its current state.
The disconnect between many in the real estate industry on this subject has to do with the fact that many seem to think it’s been the government who has “unfairly” raised standards. Again – this is simply NOT TRUE. It’s each individual lending institution. For example, Bank A. may now have a minimum 670 FICO score for all FHA loans, while Bank B. is still using the actual FHA minimum of 580. That’s a huge difference! So big that it could be the difference between many buyers successfully purchasing a house or not.
Lenders who tell any REALTORs® that “all FHA loans require X-amount of credit score” or “X-amount in cash reserves” etc. could technically be misleading clients if they don’t make it clear that those are their company’s standards, not the industry’s as whole.
Here’s what you, as a REALTOR®, should remember… lots of changes have happened in the lending industry nationwide over the last month. There will also be many more changes to come as some of the current economic uncertainty becomes clearer. With all the change that is happening, agents should have more than one lender whom they can trust and rely on. You need to ask the right questions to those contacts and form your own picture. Realize that there are many great, great people who truly believe that they are telling you the truth when it may not actually be 100% accurate. The more professionals who work at differing places you know and talk with, the better. The more you ask for new changes to be explained to you in detail, the better.
Lastly, we offer any and all of you this… if you do not have a lender of choice, you can always rely on our team for assistance. Have a question? Great! Call/text/email us. Need to know our minimums? Well, we’ll be happy to provide those. As of today, Amerifirst has not changed its minimum guidelines at all. Our FHA is still a 580 FICO credit score for example… assuming you meet all the other government guidelines, etc.
Good luck selling out there! Stay safe, stay healthy, and stay positive, everyone!
Down payment and terms shown are for informational purposes only and are not intended as an advertisement or commitment to lend. Please contact us for an exact quote and for more information on fees and terms. Not all borrowers will qualify.