It's a new year and we are hoping the housing market will turn around this year, but no one knows for sure!! There is a lot of talk about it and several economists are saying this year the housing market will come back. I just heard an ad for a car dealership that was talking about getting financing for cars and that it is possible – the same goes for homes!! We have all heard that it is harder or impossible to get a mortgage, that's not true!
For those that are thinking about buying a home and hear how difficult it is, if you are prepared, it isn't that bad!! The days of zero down loans are gone – other than VA and rural development loans. However, you can get an FHA 30 yr fixed rate loan with a minimum down payment of 3.5%. And that money can be a gift from a family member. There are down payment assistance programs through the State of MN if your income qualifies. There are conventional loans that have a minimum down payment of 3-5% down. Some of the programs allow you to get a gift from a family member for all or part of that money.
When you decide to look for a home, you need to know what your credit report says. You can pull a copy of your own credit report for free at www.annualcreditreport.com. You can get a credit report once a year this way, your credit scores will cost a fee, but just the report will tell you if you have any issues to take care of. You can also talk to a loan officer and have them pull your credit report and go through it with you. You really want to have a minimum credit score of at least 620 for an FHA loan. You can get an FHA loan with a lower score but the interest rate will be higher. For conventional loans, you want to try and be at 680 or higher. Again, you can get a conventional loan with a 620 credit score, but the interest rate will be much higher.
Due to new mortgage insurance requirements, it is common for your debt to income ratios to be limited to 45% of your income. What this means is that if you make $3000 a month, your total debt including your house payment, car loans, credit cards, student loans and any other debt can not be higher than $1350. If your income is $5000/month, your debt can't be over $2250. There are some exceptions to this rule, but it is a good standard to go by. Several years ago, your income/debt ratios were 28/36 – in other words, 28% could be housing and your total debt could be 36% of your income. With automated underwriting, we have been able to expand those ratios, but they are still good numbers to watch. FHA requires income/debt ratios closer to 29/41%, but with automated underwriting, it is still possible to get approvals at or slightly over 50% of your income. The concern for homebuyers is making sure that you have the ability to make the house payment along with your other payments so that you can keep your house!
There are several things that help you in qualifying for a mortgage. One of them is reserves – that is the money you will have left over after you buy your home. It really helps to have at least 2 months of house payments set aside. If you are concerned about your income or credit, you may want to have more than that. Reserves can be in a 401K or an IRA, as long as they are accessible. Another compensating factor is your rent, if you have been making rent payments similar to the new house payment, that will help.
If you are thinking about buying a home, it is a terrific time – rates are very low, home prices are low – talk to your loan officer and find out what you need to do to get qualified for a mortgage.
Leslie Vanderwerf, Advisors Mortgage – lvanderwerf@advisorsmtg.com
