For a long time after the real estate housing crisis in 2008, buyers with a poor credit history had a difficult time finding mortgage financing. It was a problem that trapped those seeking to buy a home because so many lost their homes from the inability to pay their mortgages. Loan options for borrowers with bad credit were often nonexistent. This was true for buyers with poor credit in WA just as much as it was for buyers with poor credit elsewhere throughout the country.
Some suffered damage to their credit history that was severe. Millions filed for bankruptcy.
Not only did mortgage lending requirements get stricter for home buyers, but the funds available for home loans were also severely reduced. Even those with a good credit history found it more difficult to qualify for mortgage financing.
Now, there is a much better environment for homebuyers with a bad credit history who are seeking a loan. This is great news for those seeking to enter the home buying market in the State of Washington in the near future. If you’re looking to buy a home in Seattle, Bellevue, Kirkland, or any other top WA city, you won’t have to worry about being completely shut out just because of poor credit history.
Those with a bankruptcy on their record, which was settled at least ten years ago, will see the bankruptcy taken off their credit history. Suddenly, their credit score may increase dramatically.
Washington State offers some of the more desirable, attractive housing markets in the whole country. Markets such as Seattle and Bellevue, for instance, routinely rank high on lists of the hottest and most desirable cities in the U.S.
If your credit score has taken a dive, the good news is that the market has developed such that you’ll still have a chance to acquire a mortgage loan. You may need to adjust your selection process, and the terms of your loan may not be the same as they would under a better credit scenario, but you will still have options.
Related: Washington State Housing Market
Conventional financing is available for those with decent credit. This includes attractive terms and conditions for conforming, VA and FHA loan programs. Those with lower credit scores may be able to qualify for FHA and VA financing as those programs are much more flexible when it comes to credit scores; however, if you have a recent negative credit event such as a foreclosure, short sale or bankruptcy qualifying will be difficult.
Fortunately over the past few years, Non-QM or unconventional financing has become more widely available. These programs are tailored to borrowers that don’t fit in the box of conventional financing.
Programs available offer flexibility for borrowers with recent credit issues, self-employed borrowers and borrowers purchasing investment properties. Some new programs also allow for a down payment of less than 20% on a jumbo loan which was impossible to find several years ago.
Unconventional financing comes with higher rates costs and than those found with conventional or government insured loans. When looking at these types of mortgages it is vital you understand the terms and go in with a solid plan to eventually convert the higher interest rate loan into a lower rate conventional mortgage when your situation improves.
In 2008, these non-QM loans were a total of $65 billion per year. In 2009, this figure dropped to $10 billion and, in 2010, the low of $8 billion.
Since 2010, the availability of these non-QM loans steadily increased. By 2018, the total amount of these loans was up to $45 billion.
Are we back to where we were before when the real estate market collapsed in 2008? As far as the total amount of non-QM loans, we aren’t even close. The vast majority of Non-QM loans done in the early 2000s were no-document or stated income loans. These loans allowed borrowers to provide no proof of their ability to pay the mortgage they were applying for.
The Non-QM loans today can actually be more restrictive than a conventional loan other than the flexibility it provides in the specific area of need. For example, a loan allowing for a recent negative credit event might require higher income or more assets/larger down payment than a comparable conventional loan.
Overall, the qualifying standards for these loans are still much stricter than they were prior to the housing crisis. These standards will help ensure that fewer non-QM loans go into default and create another financial predicament.
Today, there is less predatory lending involving non-qualified borrowers acquiring a no-doc loan without proving income. Before, predatory loans often had a teaser introductory rate that quickly escalated to an amount that made it impossible for the home buyer to continue to make their mortgage payments.
There are fewer of these loans now. Of course, stricter standards won’t translate into 0% chance of default. There will always be some borrowers who become unable to service their loan obligations for one reason or another. But, as a systemic problem, the issue of predatory non-QM lending has been largely resolved.
Besides the “big picture” real estate bubble worries, the positive news is that borrowers with a poor credit history can now participate in the housing market again. Borrowers with poor credit may not be able to participate in quite the same way as those with better credit, but they won’t be barred from entry completely. Loan options for borrowers with bad credit won’t be as numerous, but bad credit won’t ruin things altogether.
Be prudent when considering a mortgage loan and carefully think about the ability to make the monthly payments. Read all the details of the loan requirements carefully. Use competent professional advice from a trusted home mortgage professional to make sure you have a very clear understanding of the loan terms and conditions.
If you’d like to learn more about the credit requirements associated with mortgage financing, we can help. The mortgage professionals at Sammamish Mortgage have expert knowledge in this area and are available to provide counsel upon request. We are a family-owned mortgage company providing mortgage programs to customers in WA, OR, ID and CO since 1992. If you’d like to learn more, feel free to contact us, or you can go and View Rates by visiting us online. Additionally, you can get a Rate Quote, or use our new mortgage application system online and Apply Now for a loan.
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