Yep, you read that headline right! This move occurred after the National Association of Realtors and FHA Commissioner David Stevens, among others last year, criticized many U.S. banks for require credit scores as high as 650 in some cases before making loans. Banks’ credit policies were not inline with FHA guidelines and were artificially restraining home sales by as much as 20%. Wells Fargo’s new policy is that it will accept borrowers with credit scores of 500 to 579 if those borrowers can make a down payment of at least 10% – and they cannot be gifted funds or other down payment assistance. Borrowers with credit scores of 580 to 599 must have a down payment of at least 5%.
Some critics of Wells Fargo’s new policy feel this will open things up for another crisis with sub-prime borrowers, but it appears the bank feels that by requiring 10% down, they are eliminating some of that risk. Wells Fargo is also requiring that borrowers have at least 2 months worth of funds in reserves and they may only request a maximum of 3% towards closing costs in assistance from Sellers. By making sure their sub-prime borrowers have some cash in the bank, they feel there will be a much lower fall out rate on these loans. Borrowers who have credit scores of 600 or better can still pay only 3.5% towards their down payment under a standard FHA loan. Wells Fargo’s new policy took affect January 15, 2011.
It will be interesting to see if other major banks follow suit. To apply for a Wells Fargo Home Mortgage, please contact us, and we will put you in touch with our contact who can start the application process right over the phone.
Source: Realtor Magazine