Wednesday, May 10, 2023
New federal incentives are available to Utah home buyers with bad credit scores
Urban Living
Posted By Babs De Lay on May 10, 2023, 4:00 AM
Starting this month, people with bad credit may be able to get federally insured mortgages, thanks to other people getting new loans with good credit. I'm so not making this up!
Roughly 25% of homebuyers with FHA loans are people of color who, on average, have fewer savings for down payments on homes and condos and often have lower credit scores. Newsweek reported that this can be attributed to distrust of the banking system or even a lack of understanding of the nation's financial systems among first-generation Americans. Data from FinMasters noted that the average credit score in white communities was 727 in 2021 compared to 667 in Hispanic communities and 627 in Black communities.
The new incentives come at a cost for buyers with good credit who saved money, and some believe this unfairly penalizes Americans with a stable history. Critics charge that rewarding folks with bad credit doesn't help access to housing. Instead, we should focus on inflation, cutting energy costs and investing in infrastructure in cities across the nation.
This program will increase closing costs for good-credit buyers by roughly $40 per month.
It reminds me of the years 2007 and 2008 when minimum wage workers were approved for huge home loans without any money as a down payment and not great credit. Sadly, many of them lost their homes when the Great Recession hit.
Certainly, people with lower income should have an opportunity to own a home. But the question is will those with bad credit be able to make payments on time? The mortgage broker I work with is more than willing to help first-time homebuyers understand not just the process of getting a home loan, but often to repair the potential buyer's bad credit before applying for a mortgage—at no cost to the borrower.
It's imperative to get pre-approved for a loan before making an offer on a home, as the protocol is to show the seller that the borrower has passed certain loan guidelines.
There's lots of grumbling in the industry about this new program, but the basic facts are that 1. inventory is low and 2. affordable housing is extremely hard to find unless you're willing to commute to the suburbs.
And when closing costs for a mortgage are 2% to 3% of the sales price, an extra $40 shouldn't break the bank for a first-time buyer—especially if the buyer's broker can negotiate with the seller to help pay some of the buyer's closing costs.
About The Author
Babs De Lay
A full-time broker/owner of Urban Utah Homes and Estates, Babs De Lay serves on the Salt Lake City Historic Landmark Commission. A writer and golfer, you'll find them working as a staff guardian at the Temple at Burning Man each year.
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