More people believe “it is now a good time to buy a home,” says Jim Bryant, a Wells Fargo mortgage consultant. But that doesn’t mean they are able to do so.
“They come in because they know interest rates are low and they want to buy,” Bryant says. “They are so hopeful. When you tell them they aren’t eligible, you see that hope fade away.”
But Wells Fargo, the nation’s largest mortgage lender, isn’t in business to dash hopes, he says. That’s why borrowers who can’t qualify for loans are referred to free phone counseling provided by the non-profit National Foundation for Credit Counseling. It’s not just Wells Fargo. Other firms that depend on homebuyers are aiming to help the financially challenged become mortgageready.
“People have always had credit problems,” says Dave Erickson, president of Grayhawk Homes Inc., Columbus, Ga. “But now, after the recession, problems are more common, plus the standards for getting a mortgage are more stringent.”
Some hoping to buy now have faced serious financial traumas like foreclosure, and lending rules prescribe that they must wait before purchasing. Easy fixes When customers first visit, they come for a “pre-approval,” says Joe Parsons, a senior loan originator with PFS Funding, a Dublin, Calif., mortgage banking firm.
“Real estate agents aren’t going to take a buyer home shopping unless the buyer is going to be able to get a mortgage, so they want all buyers to be pre-approved,” he explains.
Lots of the consumers who intend to buy are confident that their credit is acceptable, because they have been paying their bills, Parsons says. But many, particularly first-time buyers, aren’t aware that certain financial management practices could jeopardize their plans.
Any time credit card balances exceed one-third of the card limit, it can depress a mortgage applicant’s credit score, Parsons says.
He has counseled borrowers to pay down their card balances, and within a short time, some boost their scores enough to qualify.
Some borrowers don’t have bad credit, but they don’t have good credit either, because they haven’t had loans or credit cards, adds Louise Thaxton of Fairway Independent Mortgage, Leesville, La. These people need to establish a credit history by taking out a loan or credit cards and making on-time payments, she explains.
Reforming habits
Credit scores are fluid, changing to reflect the latest credit-related behaviors. Still, experts say it could takes months of new financial habits before a borrower can qualify for a mortgage, with the time frame dependent on individual circumstances.
That’s where counseling comes in. NFCC counselors advise customers to anticipate two hours of phone consultations, explains Helene Raynaud, NFCC senior vice president.
Most consumers divide that time into half-hour sessions, spread over a number of weeks, she adds. The NFCC counselors typically review a consumer’s budget, suggesting ways to curb spending and save more, and they also help consumers manage debt payments.
In an initial meeting with a potential borrower, Thaxton says, many lenders will outline what a consumer needs to do to improve his or her finances. Thaxton’s firm follows up with weekly emails that outline good credit practices “to keep them motivated,” she says.
Finish line
Even after a buyer is approved and he or she expects to buy by a certain date, the lender can cancel the commitment.
This could be for various reasons: for instance, if customers don’t collect pay stubs, can’t document where the down payment came from or take on new debt before closing.
That’s why Michael Sivage, owner of Albuquerque-based Sivage Homes, says he now spends his Fridays ensuring homebuyers will actually receive their mortgages. “Buyers require a fair amount of hand holding,” he says.
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