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Thursday, October 18, 2007


The Subprime Mess: Now What?

I explained in an earlier post that I would tell you what the whole Subprime Mortgage Mess means to you and how it changes everything. Then I went off on a credit scoring tangent. I apologize.

The world is a different place now. A few short months ago, you could have been able to secure 100% financing with a 580 credit score and practically no money in the bank. Those days are gone.

Now, you have to work for your approval. You have to get educated about the world of credit and how you can take advantage of knowing what other people don't. That's the whole idea behind this blog!

The subprime banks all went belly-up. What's left? Well, mostly two options: conventional financing and FHA financing.

Conventional financing is great! The interest rates are low, however, plan on paying for Mortgage Insurance, or PMI. PMI is an extra charge that you need to pay that kicks in when you finance more than 80% of the house's value. You can get around this by breaking your lending up into two loans: an 80/20.

Conventional financing uses an underwriting model to determine approvals. Generally, you'll need credit scores in the 600's to qualify. You'll need a 680 to qualify for the 80/20 option. If you have less than perfect credit, you can sneak in an approval by showing significant assets. Those underwriting models love assets. Even if you have a large 401(k), that could be enough to give you the approval you're looking for.

FHA is another option. These programs take more time and effort to underwrite. I figure that's why they haven't been very popular. Now, they are a great way to not only get an approval for a less than perfect credit borrower, but to get the finest rates under the sun! There is also a PMI requirement for this loan, but the government makes the PMI much more affordable in an FHA loan.

My advice? If you're thinking about buying or refinancing within one year from now, go to a local mortgage company immediately. Tell them your goals and take this opportunity to get expert advice on your credit report. Ask them what you have to do to become approved in the time period you are working with. And then do what they say! Take action to improve your credit to get the best possible approval.

Also, stay tuned for my Good Faith Estimate Report E-Book. It's just about finished and it's lookin' good. I'll keep you updated.

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