The past few years have been rocky times for the real estate industry, and most lenders have tightened their lending standards. Is it still possible for most people to own a home? Absolutely! Mortgage and real estate industries are ever changing, especially in today's economy and era of government compliance, but you can prepare yourself with the right information. And get help from a loan officer who understands the new rules.
Many realtors and home buyers often call me and ask how to qualify for a mortgage. Well, the process has changed drastically over the last 2 years. I have to honestly say I am glad for the change in order to bring stability back to the market. We are now back to common sense lending. Getting a mortgage and borrowing a huge amount of money should not be a one day process. Buying a home should be planned. It is not complicated or difficult. It is simply the right planning with help from an expert. So what should a home buyer plan for? Here are the basics:
1. Take the time to talk to a Licensed Mortgage Loan Officer. A 20-minute consultation will map out a good plan of action to help you purchase a new home. A good loan officer should not take more than 1 day to get back with you.
2. Evaluate your credit with a Loan Officer. All lenders have certain fico score requirements. Although most lenders require a minimum 640 fico score, there are some lenders who will accept a score as low as 580 as long as you have a documented rental history. If your score falls below 580, a good loan officer will offer advice in what you need to do to improve your credit score.
3. Evaluate debt-to-income ratio with a Loan Officer. Most lenders can only accept no more than 50% debt-to-income ratio. This means all minimum monthly payments listed on the credit report plus projected new mortgage payment with PITI (principle, interest, taxes and insurance) should not exceed 45% to 50% of your income. Utility bills are not included.
4. Money for down payment. All FHA loans require minimum 3.5% down payment. The money can be from your savings and checking account, 401K, retirement, gift from relatives, and tax refund. The money should be traceable and documented. A good loan officer will evaluate 2 months of recent bank statements and inform you of any red flags.
5. Ask the Loan Officer about all the costs involved in purchasing a home. In most situations, home buyers should plan to pay for the inspection fee, appraisal fee, and earnest money when making an offer. When it comes to home buying, never under-estimate the power of preparation.
Of course not everyone's situation is the same. Self employed business owners are different than W-2 paid employees. You may have spotless credit. Some people have foreclosures on their credit, and others have bankruptcies. Anyone can qualify for a mortgage but planning a strategy and setting a realistic time frame will be different for everyone, so it is very important to work with an experienced loan officer who can help you plan and guide you through the home buying process.
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