Experts shed light on today’s mortgages, and why now the path to ownership is clear for more buyers.
By Marilyn Kennedy Melia
CTW Features
1. Start with the Down Payment
Most experts agree that saving for a down payment is the biggest struggle for consumers hoping to buy.
“Most of the efforts by [the government entities that back mortgages] have been targeted at buyers with low accumulated assets for a down payment and who have at least moderately good credit,” said Erin Lantz, vice president of mortgages at Zillow.
One government loan, the Federal Housing Administration mortgage, allows just a 3.5 percent down payment, and has been especially popular in the past few years because it was often the only option that borrowers with limited down payments could qualify for.
2. Keep Credit In Mind
The FICO credit scoring model, which takes data on whether consumers pay their credit card, medical, phone and other bills from the three major credit bureaus, and then assigns a number from 300 to 850, is used by most mortgage lenders.
The higher the number, the better the score. In the immediate wake of the financial crisis, scores well into in the 700s were required for borrowers making less than a 20 percent down payment, according to Don Frommeyer, former CEO of the National Association of Mortgage Brokers, but there has been easing since then.
3. Ensure Affordability
Monthly recurring financial obligations, combined with the monthly amount that a borrower would pay on the new mortgage – including a monthly allotment for property taxes and homeowner’s insurance – shouldn’t take up more than 43 percent of the borrower’s gross (pre-tax) monthly income.
Usually, homebuyers make an initial visit to a lender to get “pre-qualified,” where the lender looks at the financial profile of the potential borrower, including the tally of recurring debt to income, and estimate how big a mortgage the borrower should be eligible to obtain.
But when a buyer selects a home and makes a formal application, the debt-to-income ratio is again measured, and lenders also will check to see that no new debt, such as an auto loan, has been added when the borrower is ready to close on the loan, according to Frommeyer.
Indeed, lending rules are still strict enough that borrowers must be careful to keep up prudent financial practices every step of the way.
© CTW Features
