Credit Scores - A Moving Target For Home Renovation Loans?

Not long ago, almost anyone could get a home renovation loan or home improvement loan, regardless of credit score. Then, with the housing and mortgage industry crisis, the best home renovation loans required at least a 580 credit score. The, it shifted to 600. Now, it basically sits at 620. Is this the last change, or will the target keep moving for credit scores and home rehab financing?

For potential borrowers, all of these rapid changes within the mortgage industry have created a lot of frustration. You work under one set of rules to qualify yourself for a much-needed home renovation loan only to find out that the rules have changed on you. Banks have been circling the wagons, attempting to fight back the pains of the housing market crisis. In doing so, they have grown much more conservative in their lending guidelines.

One of the big shifts in the guidelines is the requirement for minimum credit scores. Right after the housing collapse a couple of years ago, you could still secure a home rehab loan (a.k.a., a home renovation loan) with a 580 credit score through the FHA 203k program. This was great news, because home improvements are going to be the means by which this nation eventually corrects the housing crisis.

As more and more foreclosures flood the housing market, home improvement projects, including the home improvement loans that go with them, will be the best way to increase the value of the homes in neighborhoods across America. So, when banks decided to increase the credit score requirement to 600, it made things that much tighter for potential borrowers.

Just recently, banks have again increased the credit score requirement for the FHA 203k renovation loans to 620. It's not a huge increase, but it will seem like a mountain to climb if you are a borrower who thought you were sitting pretty with a 601 credit score. So, what's the good news?

There is more than one silver lining in all of these changes. First, let's start with the most basic - this last shift to a 620 credit score requirement ought to be the last change for a long time. The FHA 203k program is still quite liquid, meaning there is plenty of money to be lent for home improvements and home rehab loans. The government is making sure money is available, as they realize the importance of these loans to the economy.

Second, this credit score increase to 620 may actually help the country overall. Remember, loose lending practices by banks across the nation are one of the main reasons that our housing market and mortgage industry found themselves in such trouble. Now that banks have basically flushed out their overly aggressive, often predatory, lending guidelines, we should feel more comfortable that only qualified borrowers are being let money.

Why should we care? Because qualified borrowers will have a much lower foreclosure rate, meaning less foreclosures on the market over the next few years. This will directly lead to an increase in housing values and a nice boost to our economy in general. That will be good for everyone. By setting the credit score requirement at 620 for home renovation loans, banks have basically found a happy medium - score requirements that are just high enough to insure only qualified borrowers but also low enough to make home rehab loans a possibility for the majority of Americans.

But, what if you are below the 620 credit cut-off? Imagine you found the perfect home to buy that just needs a little work to fix it up. It could pay off handsomely for you, because prices right now are low. And, home renovation loans allow you to build a ton of equity into your new property.

So, if you are below a 620 credit score, you may feel like you're on the outside, looking in, while others around the country get to take advantage of some amazing opportunities. If you fall into this category, take heart. There are ways to still qualify for your financing. In the past, you could simply get a sub-prime loan. Nowadays, we are smart enough as a nation to know that this is not the way to do business - it's not good for banks, it's not good for borrowers, and it's not good for the country.

So, the good lenders out there have found that they can be most helpful to borrowers by joining forces with trustworthy, quality credit repair firms. Unfortunately, there are a lot of credit repair scams out there. Many companies simply don't deliver on their promises, sucking money out of their customers. That's why savvy lenders have teamed up with the reputable credit restoration institutions to make sure their borrowers are protected.

So, if you have a credit score below 620, and you need a home renovation loan or home rehab loan, then don't fret. Make sure you work with a lender who understands home improvement projects as well as proper credit restoration. If you do this, you should be well on your way to fixing up a property for your new home.