How Will Loans Change in 2014?

by Stephanie Sims

Ready to Buy Again

Now that the market is heating up, many homebuyers who have a short sale or foreclosure in their past are looking to buy again. Guidelines for FHA loans say that homeowners with a blemish like this on their record need to wait three years since the foreclosure/short sale, so these buyers are slowly entering the marketplace again. In addition, in Atlanta, 32 percent of buyers are still underwater on their homes, so even if they do want to re-enter the market, it might not be this year.

“Buyers who are still underwater are handcuffed and can’t do anything but start to build credit so their credit score is better for when they can re-enter the market,” Pelaske says.

The minimum credit score needed to obtain a loan is 620. But the “million dollar” question, Pelaske says, is how can everyone fix their credit? “It’s still a major challenge, and a complicated answer,” he says. “And collections, medical debt, all that is on their credit report, too, not just a foreclosure, possibly. There are no oversights in the credit industry.”

Pelaske says he runs credit simulators for his clients to see how far they have to go to obtain a 620 credit score, or what they should pay off to get the most extra points added to their score. Professional credit firms can also help with this and help improve bad credit situations.

“If they pay something off that will only cause their credit score to increase by five points, it’s not really worth the time,” he says. “A lot of consumers are uneducated or don’t have the time to do research themselves about what will increase their credit score, or they have misinformation. I actively try to run consumers’ credit scores and see what they can do, especially because they’ll buy once they achieve a good credit score.”

“We’re walking slowly into an alternative credit market, or an alternative to Fannie Mae and Freddie Mac loans,” Janicki says. “These buyers will have to show documentation, especially if they have a 615 credit score, for example, but they can put 20 percent down on a home, show they have proof of income and can get a loan outside Fannie and Freddie, and still typically is FHA loans.”

Documentation is still a stringent requirement when it comes to loans, especially if the buyer is self-employed or has bad credit. Janicki says that, in the mortgage industry, many companies use the terms pre-qualify and pre-approved synonymously, but they’re not synonymous terms. The pre-qualifying process is where the buyer gives documentation and info to a loan officer and the loan officer tells them what they can afford. But pre-approval means that loan officer will look at all the documents that support what the buyers said when they were pre-qualified, like pay stubs, W2s and tax returns to verify income and other information provided.

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