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What If My Credit Is Not So Good?
By Diane St James © 2003

You just got your credit report and your score is 597. Ugh.
Now you have an appointment with a subprime lender to see
what your options are. After all, you can't go for a Fannie
or Freddie conforming type of mortgage with a score THAT
low, can you?

Just because your score is lower than the magical 620, it
doesn't mean you instantly have to think the dreaded 'subprime'
mortgage. In recent years, both Fannie and Freddie have
come up with enhancements to their automated underwriting
systems. They have identified an 'in between' range for those
that don't have the greatest credit history or scores, but
perhaps have some good credit or enough positive factors
about their loan application to escape the subprime mortgage
rates, costs, and their prepayment penalties.

Fannie's loans within this category of underwriting are
called expanded level loans and it has three levels of
possible approval feedback (results). Freddie's name
for this is called an A- minus loan and there is only one
level of feedback for it.

Personally I like Freddie's name for this mortgage category
the best. It can give folks something to relate to. Think back
to your school days. Instead of you getting a A for your
credit rating and getting the best of the best rates,
you get an A - with a slightly higher rate and/or points.
That is a lot better than a D or worse grade and double-digit rates.

These loan levels generally allow for a lower credit score and
tend to allow higher debt ratios, although I don't recommend
going higher than 50% anyway. (You may end up eating mac
and cheese for a month because you have no money left
after paying your bills!)
I have underwritten thousands of these loans and continue to
see expanded level approvals that surprise me. I have even
seen some feedback results with a regular conforming type
of approval, (like getting an A) even with a low score.

So when you meet with your lenders ask them about these
Expanded or A- conforming loans and request that they
try submitting to Fannie and Freddie first before jumping
the gun. You may be surprised with the outcome.


Diane St. James is a mortgage professional with over 23 years
experience. Her website http://www.abcmortgage.net exists to help
educate people about the mortgage world. She is the author of 2
e-books, and has been quoted in the WALL STREET JOURNAL,
on MSN.com, appeared on national cable new television CNBC, and was featured on a Cover Story for USA Today newspapers.