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Mortgage help for credit-less first-time homebuyers
by Tracey Boyd

Homebuyers with derogatory marks on their credit reports can still apply for a new mortgage, but what about those first-time homebuyers who have little or no credit at all? There is help for them, too, according to a March 16 article by Erik Sherman for The Mortgage Reports.
There are three traits that put first-time buyers "off the credit grid," according to Sherman, making it harder for them to obtain a mortgage: They have never had a mortgage, they don't have a car loan and they tend to use their debit cards more than credit cards. This type of financial behavior makes it difficult for a credit profile to be created.
"Call it the unintended consequence of debt-free living: with no visible evidence that you've managed credit accounts in the past, mortgage lenders become (rightfully) nervous about your ability to repay on a loan," Sherman wrote. "...there's no history for them to go on."
Credit report and scores
Little or no use of credit diminishes a first-time buyers' payment history, which is the largest component of the credit score. Even so, first-timers shouldn't run out and apply for a credit card or car loan because those who do have a credit score will likely see it decrease. According to Sherman, this is because opening new credit lines is a negative in the credit bureaus' credit score algorithms. Also, the positive effect on the borrower's credit score won't help until 12 months of payment history exists for each new account.
For these types of borrowers, an FHA mortgage is a great option. Sponsored by the Federal Housing Administration, an FHA mortgage's guidelines direct lenders to look at all aspects of a mortgage application, not just the credit profile. In addition, it allows for a smaller down payment than the more hefty 20%.
"This is good for first-time home buyers because FHA loans allow for a low down payment of just 3.5%, which can help a household with good income but less-than-optimal savings move from renting into homeownership," Sherman wrote.
It's available from nearly every mortgage lender, which is great because there is a large market for this type of loan according to Sherman.
"Some estimates put the number of credit-lacking consumers at more than 5 million nationwide," he wrote.


Mortgage Rates Drop (Again) While New Home Purchases Rise


Thursday, February 11, 2016 - 12:07

Phil Hall



We are now six weeks into 2016 and mortgage rates have yet to rise. Freddie Mac’s latest Primary Mortgage Market Survey (PMMS) has found the 30-year fixed-rate mortgage (FRM) averaged 3.65 percent for the week ending Feb. 11, down from last week when it averaged 3.72 percent. This product is now just above the 2015 low of 3.59 percent. The 15-year FRM this week averaged 2.95 percent, down from 3.01 percent last week, and the five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 2.83 percent this week, down from last week’s 2.85 percent.
“In a falling rate environment, mortgage rates often adjust more slowly than capital market rates, and the early-2016 flight-to-quality has run true to form,” said Sean Becketti, chief economist at Freddie Mac. “The 30-year mortgage rate has dropped 36 basis points since the start of the year, while the yield on the 10-year Treasury has dropped 59 basis points over the same period. If Treasury yields were to hold at current levels, mortgage rates might well sink a little further before stabilizing.”

However, the declining rates have not damaged the volume of new home purchases. The Mortgage Bankers Association’s (MBA) Builder Application Survey (BAS) data for January found mortgage applications for new home purchases increased by 14 percent from the previous month, while new single-family home sales were running at a seasonally adjusted annual rate of 499,000 units last month.
The MBA also reported that the seasonally adjusted estimate for January is an increase of four percent from the December pace of 480,000 units, while on an unadjusted basis there were 38,000 new home sales in January, an increase of 11.8 percent from 34,000 new home sales in December. A little more than two-thirds of January’s mortgages were conventional loans, while the average loan size of new homes dropped from $333,182 in December to $325,806 in January.
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