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Tips for qualifying for a mortgage in 2011
This entry is a follow up from a post last month about what is holding you back from buying or selling. It included a poll and the results were interesting: the overwhelming reason that people are not purchasing? They can not obtain financing.
We are going to take a closer look this month to find out what exactly you will need to get a mortgage to purchase a home in 2011.
This entry will be part of a series of pieces I will be doing over the next month with Doug Welch of Allied Mortgage here in Michigan. The series will include a few areas of getting financing secured in today's market, but for now, we'll start at the beginning - understanding what lenders require.
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| flickr photo courtesy of nikcname |
Here, Welch offers some guidelines to consider:
Obtaining a Mortgage in 2011
Obtaining a mortgage is definitely harder today than it used to be in years past. However, there are still many options available to help borrowers purchase their first home and/or dream home. Here is some advice on how to obtain a mortgage in 2011:
Save for a Down Payment
Saving for a down payment is the key factor to obtaining a mortgage in most cases. All FHA Mortgages will require a 3.5% down payment and Conventional loans need 5%, and in most cases a 10% down payment. However, the Rural Development Loan Program does not require a down payment. This program is property address specific for eligibility, and there are also household income limits to qualify.
Increase Your Credit Scores
Lenders are much stricter when it comes to credit scores these days. In most cases they require at least a 620 credit score for FHA and USDA Loans, and much higher for a Conventional Loan, just to qualify. To qualify for the best mortgage rates, a 680 is required for FHA and USDA, and a 740 is required for a Conventional Loan.
Manage Your Debt
Lenders are also looking at debt-to-income ratios, and the amount of debt an individual carries. They will want to see that your monthly debt payments, including the new mortgage payment, taxes and insurance, are less than half of your monthly income. However, it is also not good to have zero debt, as most lenders do require two to three open trade lines (i.e. credit card, car loan) with at least a two year history.
The best thing a potential home buyer can do prior to searching for a home is to find a true mortgage professional to pre-qualify them for a mortgage. This will allow the consumer to know what their options are prior to searching for a home. The home buyer will want to know the programs that are available to them, down payment options, and terms of the loan. If the home buyer does not qualify, due to any reason such as credit issues or a debt ratio issue, a good loan officer will advise them how to qualify in the future.
Welch sums up by saying, that it is a fact that lenders are definitely tougher than they were in the past. However, I believe that the new lender requirements will allow most people, who have the ability to repay a mortgage, to qualify for a mortgage if they meet the above qualifications. And with the help of a mortgage professional, there are plenty of options available to potential borrowers to make it possible to purchase their first home and/or dream home.
Doug welcomes your contact via e-mail if you're still unclear about qualification guidelines.
The bottom line is, if you have the opportunity to purchase a home this year, the timing could never be better as long as you're able and qualified to obtain a mortgage before interest rates head back up.
Chris Glahn is a licensed Realtor serving the Ann Arbor area as part of the Keller Williams Ann Arbor Market Center, where he acts on behalf of his clientele in the purchase or sale of their home. He also assists clients in leasing. He welcomes your contact via e-mail or by calling 734-730-3403.
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