Quest for Home Financing
Considering that the purchase of a home is usually the most expensive purchase of one’s lifetime, obtaining a mortgage is a big key that unlocks the door to the home of your dreams. For most Americans, hard work and determination can result in finding the perfect house. But, working with a lender in order to secure the financing can lead you to jump through a few hoops. Below are a few questions that we have encountered from buyers over the last few months that we would like to share with you. Hopefully, this helps address some questions that you may have.
Q: What does it take to get a loan today?
A: Since the housing crisis of 2007, lenders have made it tougher for one to acquire a home mortgage because of more stringent underwriting standards. This equates to the fact that on average a borrower needs to have a higher credit score and potentially more of a down payment. The ideal credit score to qualify for a good interest rate is 700 and above with a debt-to-income ratio of 43% or less and a 20% down payment minimum. Don’t get discouraged by any of these numbers as they will vary from lender to lender and don’t always apply to all situations either. For instance, if you are able to qualify for an FHA loan then the down payment can be as little as just 3.5%! Here is a short video from Sketchnest explaining the FHA loan process in general:
Q: Is there more paperwork involved?
A: As usual, lenders have the standard ¾ to an inch packet of documentation that they require just to get a loan through underwriting and approved. Note that we use the measurement figuratively. But since lending institutions are bound by more regulations now, they do have to verify all income, assets and other obligations not to mention additional disclosures. If you are self-employed, just be prepared to provide even more documentation of income.
Q: What changes have been made in the lending industry to protect against homeowners becoming underwater in their mortgage with foreclosure and short sales resulting?
A: Not only were changes made to protect borrowers, but also to make lenders more accountable for their actions. This carries over to the predatory lending practices that were utilized which resulted in hundreds of thousands of foreclosures over the past five years. New mortgage regulations through the Dodd-Frank Wall Street Reform Act are now the law of the land. The Dodd-Frank Act put into place the “Ability to Repay” regulations which mean that borrowers must have the ability to repay the loan. No longer will a borrower be able to qualify for a loan if they have a poor debt-to-income ratio or extremely bad credit. This act also provides that lenders are not able to guide borrowers to interest-only or adjustable-rate loans nor go into a deal for no money down. Loan origination fees had no cap before but, after the Act was put into place, loan origination fees can now be no higher than 3.00 percent of the amount borrowed in the cases of mortgages of more than $100,000.
Zillow projects that home values will increase an average of 3 percent nationwide this year alone. As a prospective homeowner can you afford not to buy? Real estate has stabilized meaning that now is the time to take advantage of the real estate market prices and the relatively low interest rates that exist as interest rates are projected to reach 5% by the end of 2014. As of now, they are continuing to creep down towards the 4% mark which is great news for borrowers that are looking to either start the home buying process or are already approved and ready to lock in an excellent interest rate to realize the home of your dreams.
Flip This Boston HouseQuest for Home Financing