Is it really that hard to get a mortgage loan?

Well, after all the news feeds, that’s the perception of many and that’s because we’ve all been spoiled by the loosening of home mortgage qualification since 2004. But in reality, we’re back to basics.

Qualification for real estate mortgages is now back where they were before 2003. Anyone applying for a loan had to meet the following criteria:

  • Income (proven) that borrowers have earned enough money to cover not only the mortgage, but also other expenses – such as utilities, groceries, parenting, cars, insurance, etc.
  • Declared income – make jokes. Bankers have never relied on this data, verification has always been required. Under the old guidelines, a borrower could specify what amount was required to get the loan. As far as I know, government revenues are gone. If you are able to get a mortgage loan with “stated income,” be prepared to pay higher interest rates and make larger down payments.
  • 2 years of tax returns and W2’s to validate income
  • Good creditworthiness
  • Cash payment for the deposit, advance payments and closing costs – again account statements or other transactions as proof.
  • The front-end ratios had to be between 28 and 30%, the back-end ratios between 36 and 38% (and if everything else was great, sometimes we could get approvals with a back-ratio of 40%).
  • Front-end ratio – Amount of income to cover mortgage payment and any escrow account – PITI – Principal, interest, taxes, insurance and homeowners’ contributions.
  • Backend ratio – Amount of income required to cover the mortgage and all recurring expenses such as credit cards, alimony payments and car payments. Make sure the borrower had enough money left over each month to pay for the bare necessities.
  • Down payments of at least 5%, 20% to eliminate PMI (private mortgage insurance) required by lenders for less than 20% down.

100% financing and in some cases 105% financing has never been heard of or by the incredibly low interest rates we are still experiencing.

The bottom line is that we’re now back to basics and that’s good for all of us – sellers, buyers and bankers. There’s a difference when you stretch your income a little and buy a home that goes far beyond your means, especially with a variable-rate mortgage. We should all be grateful for the due diligence that is now required to buy a home mortgage.

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wendy encarnacion

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