I wanted to give y’all some basic tips to financing that home you’ve been wanting to buy. Getting a mortgage these days is not quite as easy as it used to be. With the fallout of the sub-prime loan market, banks are getting back to the basics in lending, i.e. people with strong credit, some cash, and a stable job. On the whole, we have been spoiled in being able to spend everything we make each week, and still being able to obtain financing on a house. I for one am glad that this has happened, for many reasons, such as this will teach people to be responsible with their money, it will limit my competition in buying properties, it will create more demand for rental properties, and it will provide some better tenants as well.
But real quickly here, I wanted to give you some basic pointers so that you will know and be prepared for the bank or mortgage company is going to want to see when you apply for your mortgage:
- Stable Income
More than likely you are going to be required to at least have one year of consistent job history with your current employer.
The days of the 5% or less down payment on a conventional mortgage are all but gone. Be prepared to put up the traditional 20%, unless you have an unbelievably high credit score, and/or an established relationship with the bank. Don’t get me wrong here, if you get an FHA or VA loan, then the requirements are unchanged (typically 3% down for FHA, and nothing down for VA).
- Low Debt-to-Income Ratio
This is the one that is the real killer. I talk and talk on this blog about getting and staying out of credit card debt, but people are neck deep in it, and they can’t get out. Now, in days past I saw mortgage companies willing to allow up to 45%, maybe even 50% of a persons monthly gross earnings to be applied to a mortgage payment. If you can find that these days, please let me know. You see, with the typical applicant being head over heals in unsecured debt, banks and mortgage companies are just scared to lend the money, and they should be. So get those cards paid off before you go to the bank for that loan.
- Good Credit
If you have bad credit, spend some time working to improve your credit scores. Dispute line item problems on your credit that are wrong, and work with your lenders to achieve a settlement, and make sure part of the agreement is that they must apply a “paid in full” remark to the credit reporting agencies. These little things can help to greatly improve your overall credit score. But most of all, pay your bills, and pay them on time!
I know this is tough news for a lot of people. But don’t kill the messenger here. It is the irresponsibility of borrowers that has caused the issues in the mortgage industry, not the mortgage companies. All these people out there knew (at least at a subconscious level) that they could not afford the mortgages they were getting into. Yeah, I’m sure that some mortgage companies out there didn’t explain the fine print about the ARMs that were going to jack up the payments 50% after the initial rate expired as well as lying to their underwriters, but hey, its in the documentation. If the borrowers would have read the documents and asked questions, they would have understood the possibilities that later became realities. So I don’t have any sympathy for people that have lost their homes because of this. The old saying is still true, BUYER BEWARE!! Do your due diligence, and make an informed decision, instead of an emotional decision. You’ll find out in the long run just how valuable doing your research can be.