It has been a decade since the housing crash put millions of American families into foreclosure. After years of foreclosure rates falling, the number of mortgages in 2018 that are in foreclosure has fallen to a level that has not been seen since before the financial downturn. Is this good news for people with bad credit seeking mortgage loan programs?
New data from Corelogic finds that just .6% of mortgages were in some part of the foreclosure process in March 2018, which is a level that has been steady since August 2017. This is the lowest foreclosure rate we have seen since June 2007. Some mortgages that are in foreclosure today were actually signed prior to the housing downturn, when lending practices and no-doc mortgage programs were more relaxed.
Mortgages that are in the early stages of being behind also are down. The number of home loans that are 30 to 59 days past due was only 1.7% in March. Mortgages that were 60 to 89 days past due were .6%. Mortgages that are considered to be seriously late which is 90 days or more past due, was 1.9%.
Looking at the number of mortgages that are late or in foreclosure is helpful to judge the health of the US housing market. In the fall of 2007, the foreclosure rate and the various stages of delinquency began to rise. A year later, the foreclosure rates and stages of delinquency exploded. Serious delinquency rose to more than 7% in 2010. Foreclosure rates eventually peaked at 3.57%.
So, based upon the number of foreclosures and mortgages in delinquency, it appears the US housing market has mostly recovered from the last financial downturn. Also, housing prices have been rising at an average of 6% in the last year, and there is actually a housing shortage of affordable homes in many parts of the country. The housing market appears to be quite healthy and the US economy is expanding.
What does this mean for people who want to buy a home with bad credit? Even though the economy is in much better shape today, there are still about 20% of the US population with credit scores below 600. Even the average FICO score of 675 is too low for people to qualify for the lowest rates on conventional mortgages.
The good news is that with the US housing market doing so much better and foreclosure rates on the decline, it is easier for people to get a mortgage today with bad credit.
After the mortgage crash, mortgage lenders really tightened up lending practices and it became difficult for many people with less than good credit to get loans. But years after the financial downturn, it is easier to get a loan when you have a credit score well under 700, and even under 600 is possible today.
The reason for this is that the US economy really depends upon a healthy housing market and people buying homes, fixing up their homes and buying things for their homes. So, within reason, the US government does want people to qualify for getting mortgages (who can really afford them, that is). If you have the income documented to show that you can afford a home loan of a certain size, you may be able to get it, even if you have an average or poor credit score.
Today you can get a government backed loan with a low credit score, such as the FHA program. This program is backed by the Federal Housing Administration and is ideal for the person or family with a low credit score. It is possible to obtain an FHA mortgage today with only a 580-credit score and a 3.5% down payment.
FHA loans are backed by the government. This means that if the borrower fails to pay the mortgage, the US government will pay back the lender a large amount of the amount due. This fact allows lenders to extend credit to people that they might not otherwise. You can also get a very competitive interest rate even if you have a low credit score. Sometimes the rate may even be lower than the conventional market rates. In mid-2018, you can get a fixed, 30-year FHA mortgage at around 4.5%.
There also are lower credit score mortgage options in conventional loan programs that are backed by Freddie Mac and Fannie Mae.
Overall, because the US housing market has recovered so well in the last several years and the foreclosure rate is very low, it is easier for people with lower credit scores to get a home loan. Just make sure that you have full documentation of your income, as complete financial documentation is required to get a loan now, per US government regulations.