Can You Qualify For A Mortgage?
By Greg Long, Steamboat Home Loans
We have all heard about the large number of failing banks (over 100 failed banks in 2009 show on the FDIC list), record numbers of foreclosures and even Fannie Mae and Freddie Mac in trouble, but how does all of this translate into changes in the mortgage industry?
You have heard about rates below five percent. You know that real estate prices are really low compared to two years ago. You've heard there is even government money to help with a first-time home purchase. But isn't that just a tease because, well, no one really qualifies for a mortgage anymore. Do they? Money is so tight and the rules are so strict, you will never qualify for a mortgage? Will You?
As a mortgage professional for the last twenty years, I can say that in many cases it's easier to buy now than it was when I started in the business in 1989.
At the height of the real estate boom in 2006 – 2007, lenient guidelines allowed a huge percentage of the population to enter the housing market. Two decades ago these people would never have been able to buy a home. However, in 2007 the majority of my clients buying and refinancing homes never provided paystubs, tax returns or W2s to prove any kind of income history. Those days are over. As of today you can forget about getting these stated income loans through conventional financing sources at competitive rates.
Having said this, I still believe it's a great time to apply for a mortgage to refinance or purchase a home. Home ownership is still a desirable goal and an important part of most people's economic wealth. Low rates and reasonable qualifying standards apply that are meant to be fueling an economic recovery and stabilizing real estate prices.
When I started in the mortgage business, qualifying for a mortgage was a linear process in which borrowers had numerous guidelines to meet and if they fell outside of any of these guidelines, they were denied. Today's underwriting guidelines employ modeling systems that allow for compensating factors. If you are strong in one area and weak in another you can still qualify. Balancing your credit history, loan-to-value, income-to-debt ratios and asset reserves is still a more lenient system that gives you credit for what you are doing right, instead of penalizing you for one weakness.
Income-to-debt ratios are also a lot easier to meet than when I started helping people achieve their dream of homeownership twenty years ago. The old rule of thumb was that your expenses could not exceed thirty-six percent of your gross monthly income. At one time, allowable income-to-debt ratios reached sixty-five percent, which is an extremely high number, but even under today's mortgage rules, we can fund loans with a fifty-five percent income-to-debt ratio, which is still extremely lenient. While mortgages are not as easy to get as they were in 2007, qualified buyers are still qualified buyers. If you save for a down payment, pay your bills on time, and have stable income, there's a great, low-rate mortgage available for you.
Mortgage rates today are significantly cheaper than the mortgages in 2007–or even way back in 1989.
Average 30-Year-Fixed Rate:
1989 Monthly Average for October 10.08%
2007 Monthly Average for October 6.38%
As of October 7, 2009 4.50%
How does buying a home in 2007 compare with buying in 2009? If you combine these two key factors: cheaper mortgage rates (4.5% now compared to 6.3% then) and lower home prices (assume 20% decline in value), by my calculations, if you delayed buying a $400,000 home in 2007 and purchased it today, your monthly housing expense would have dropped by over $750.
Your required income to qualify would only be around $3,800 a month compared to the $4,500
for the same home in 2007. As the example shows, it's actually easier to qualify for a mortgage
in 2009 than in 2007–or 1989–so what are you waiting for? 
Features
Solar Shines Issue
Radon Gas
Plays Well with Others
Departments
The Green Scene
Tax Credit for Home Efficiencies
The 4th Little Pig Built his House with SIPs
Taking the Waste out of Wastewater
Builder Perspectives
System Built Modular Construction
Decor & Style
Real Estate
Money & Finances
Can You Qualify for a Mortgage
Artisit Profile