In today’s housing market, many consumers assume that it is too difficult to qualify for a home mortgage due to tighter lending standards. This misconception discourages many from their pursuit of a home purchase within a buyer’s market that offers record low interest rates and many opportunities to purchase a home and build equity to increase one’s net worth. In our continued efforts to educate the consumer, it is our goal to dispel the myth that it is either too difficult or not the right time to refinance or purchase a home.
A 20% down payment is NOT required
There are many options for a buyer looking to qualify for a mortgage if they have little or no money to use as a down payment. A loan with the Federal Housing Administration only requires a down payment of 3.5%. If a buyer is a Veteran of the US Armed forces, they have the ability to qualify for a VA loan which allows a purchase with as little as 0% for a down payment. And additional loan programs let buyers purchase a home with 0% down and even allow the financing of the closing costs if you can fit into a particular niche. By working with a mortgage broker, a borrower can explore these various options to finance a home with the guidance of a professional.
Perfect Credit is NOT required
Credit scores range anywhere from 300-850 and many believe that a credit score of 760 or higher is needed in order to qualify for a home mortgage. This is not the case. Although a higher credit score will enable a borrower to obtain a lower interest rate, a borrower could qualify for an FHA loan with a credit score as low as 580 in certain circumstances. Applications with low credit scores are examined more thoroughly, but a lower score would not automatically prevent one from qualifying for a loan.
Debt to Income Ratios
A debt to income ratio is determined when a borrower’s monthly gross income is compared to the sum of their potential mortgage payment (PITI) plus their minimum payment obligations for all creditors that appear on their credit reports. Traditionally lenders are more comfortable if a borrower’s debt to income ratio does not exceed 42%. However, the computer programs that are used to automatically underwrite loans for Fannie Mae, Freddie Mac, and the FHA have been noted to qualify a borrower with debt to income ratios of 45-55% if they have positive, compensating factors that help to outweigh the risk.
If you have any questions that arise regarding a home purchase, refinance or any real estate matter, it is always the best decision to trust the information provided by a professional in the business. At Coast Village, we pride ourselves in our financial expertise and stake our reputation on the advice that we provide as consultants in a changing market.