Your House Buying May BeHarder In Faltering Subprime Market
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Homeowners with troubled credit histories are finding it harder to get mortgages or refinance homes because softening in the housing market is making lenders less likely to handle riskier loans. Several lenders of subprime mortgages — used primarily for home equity loans and for people with spotty credit — have shown signs of trouble after the housing bubble popped and more homeowners began defaulting high-interest mortgages. |
The shifting market is prompting investors to demand higher standards for loan approvals. Loans for 100 percent of a property’s value required a minimum credit score of 580 last year, but now require at least a 600 score, said David Zionts, owner of Connecticut Mortgage Lenders LLC. A high-value loan with no income verification could be had last year with a credit score of 620 a year ago but now needs a minimum score of 640, he said. “Some consumers are being squeezed out of the market,” Zionts said. “Some of the more forgiving guidelines are beginning to go away.” Credit scores are formulas kept by national credit bureaus and used by lenders and credit companies to determine if a consumer is creditworthy. Scores drop when customers fail to pay installment loans on time or have a high income/debt ratio. Most lenders consider scores above 700 to be a sign of good financial health and scores below 600 to be risky and a reason to increase the interest rate on a loan, according to Fair Isaac Corp., which invented the FICO credit risk score.
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