Happy Monday! I hope you had a fantastic weekend and enjoyed the warm weather we had on Saturday!
Since the “bubble burst” of the real estate industry and the revamping of lending practices a lot has changed. I’m in the process of buying a home now and going through the process has been a reality check for me for what our clients go through. I found a great article in Realty Times, “Applying for A Mortgage? Know Your Numbers” that I wanted to share for anyone considering a purchase or going through the process currently and finding it tough to navigate.
When you buy a home, it’s all about the numbers. Your mortgage rate is based on your credit scores, debt-to-income, and how much of a down payment you can afford.
Know you credit scores: Your credit scores can fall between 300 and 850. Lenders use these numbers, which are compiled by three credit bureaus and Fair Isaac to give them a quick snapshot of your credit-worthiness.
Lenders are still in a low-risk mood and are requiring fairly high credit scores from borrowers. To qualify for the best mortgage interest rates, such as benchmark 30 year fixed rate, your credit score must be approximately 720 or more. To find out what your credit scores are, visit, www.annualcreditreport.com, the site where you can get free copies of your credit report and scores.
Know your income-to-debt ratio: To qualify you, lenders use two ratios – income to mortgage debt and income to total debt.
To qualify for a 30 year fixed rate conforming loan that is federally insured (FHA), your income to mortgage debt can be no higher than 29% of your gross annual income. If you make $5000 gross income per month, your house payment, including principal, interest, hazard insurance and property taxes, should be no larger than $1450.
If you’re carrying credit card debt, student loans, or pay child support, your monthly debt service must be counted. to get the income to total debt ratio, multiply your monthly income by 41%. If you gross $5000 per month, your total debt – including your house payment – can be no larger than $2050. That means to qualify for a $1450 house payment, your other debt payments can be no higher that $600 per month.
Know Your Down Payment: For most loans, your credit scores affect down payment requirements. If you have a high credit score, you can get an FHA -guaranteed loan with only 3.5% down, but if your scores are low, you may be required to put as much as 10% down. FHA loans with less than 20% down require mortgage insurance that will not be discharged unless the home is refinanced or sold.
Conventional loans are sold by banks as securities to Fannie Mae and Freddie Mac, with the best rates only available to consumers with 20% down. You can obtain both FHA or conventional loans with less money down, but expect to pay a mortgage insurance premium, which reduces the risk for the lender.
Where your down payment originates also makes a difference to lenders. If you have saved the money yourself, or it comes from a recent real estate transaction, lenders tend to be more relaxed than if your parents are giving you the money as a gift.
All these numbers have to dovetail and make sense to the lender, so you can comfortably afford the home you want to buy.
Are you thinking of buying? Need help navigating the mortgage industry? We are here to help! Just give us a call and we’ll gladly put you in touch with a knowledgable, competent lender who can explain the process of financing and help find the best loan program for you.
Have a great week and as always, thanks for remembering The Cameron Team for all your real estate needs.