Myths and facts about getting a mortgage in 2011
Today, our Monday guy, Sam Schneiderman, Broker-owner of Greater Boston Home Team, begins a series on getting a mortgage in 2011.
I recently read about a recent survey that asked potential home buyers why they were not buying in the current market. (Sorry, can’t remember where.) The survey found that about 70 percent of those surveyed were under the impression that getting mortgage financing was out of their reach, so they didn’t try. The survey also noted that only about 20 percent of all recent mortgages applied for were denied, although the reasons for those denials weren’t available.
The reality is that mortgages with down-payments as low as 3 1/2 percent are still available and veterans can still buy with no down-payment, but lenders have tightened up the mortgage process to eliminate the loose standards that they used during the boom years.
Getting a mortgage today isn’t much more difficult than it was when I bought my first property 30 years ago. There’s plenty of mortgage money around and lenders are happy to lend to qualified buyers. Buyers and the property that they plan to buy will be scrutinized by lenders and still need to meet most of the same criteria to get a mortgage:
- Buyers need reliable, steady employment or income stream and prove it to the lender’s satisfaction.
- Buyers must show that they are credit worthy with a credit report showing no recent late payments or “charge-offs” (i.e. creditors that have not been paid according to the terms of their financing agreements, unpaid charge cards that creditors wrote off, late student loans, car repossessions, unpaid judgments, etc.)
- Buyers need to have their debt under control. Monthly debt payments can not exceed limits required by the mortgage program that they would like to use. (The typical maximum debt allowed, including the projected mortgage payments, must typically be under 45 percent of the buyer’s gross income (before taxes). A recent change is that tax returns and tax payments must be up to date, filed with the IRS. The income that a buyer claims will be verified by the lender.
- The buyer has to have cash available for the down payment, closing costs and money left over as cash reserves in the event of an emergency. (Some lenders will consider funds in a retirement account to count toward reserves.)
- The buyer must be able to verify the source of funds for their down-payment money.
- The property being purchased needs to meet the lender’s guidelines and loan limits.
* It needs to be habitable, unless the buyer is using a rehab loan to purchase the property.
* Condos need to be in a financially stable condo association with condo documents and an association budget that meets the lender’s criteria.
* The property has to be worth at least what the buyer is planning to pay for it. The lender will verify the value and condition of the property with an independent appraiser.
Next week, I will address the myths and questions about financing.
Do you have any questions about getting a loan in the current environment?
