Big Updates in the Lending World
Ever since the mortgage meltdown of 2008, it seems like it has been impossible for buyers to qualify for new loans. Following the 2008 crisis and well in to 2011 it looked like every lender required 20 percent down, excellent credit, and outstanding income in order to qualify for a new loan. Most buyers felt they would never be able to meet these requirements. However, the most recent three years have started to bring some flexibility back to the mortgage market. More specifically, we’ve seen some outstanding developments over the last six months that are really exciting for buyers:
- FHA reduced their annual mortgage insurance fee by 0.5 percent. This equates to a savings of $80 per month on a $200,000 home.
- The minimum down payment for conventional loans has been reduced to only 3 percent. This means you can purchase a $200,000 home with as little as a $6,000 investment.
- New down payment assistance programs provide either a grant or a repayable second lien for the majority of the down payment, requiring the borrower to contribute as little as $1,000.
- Investment property loans are available with as little as 15 percent down, allowing many smaller property investors to get back into the market.
When considering a new mortgage make sure that you are in good shape with the four items needed for a new loan:
1. Income – Make sure your income is remaining consistent and your tax returns are reflecting your total annual income.
2. Credit – For the very best rates you want to have a credit score of 740 or greater. There are loan options for clients all the way down to a 620 score, but as your credit score goes down your rate goes up. So it is to your benefit to have your credit cleared up and as high of a score as possible.
3. Assets – You will need to have funds in the bank for your down payment and to show you have two months of savings. Make sure you are depositing all earnings and keeping good records of your bank statements.
4. Collateral – The property you are borrowing against (your current home or your new property) needs to be in good shape and not have any “safety or soundness” issues. Make sure there are no broken windows, plumbing leaks, lead based paint, etc.
By taking care of these four critical areas you can be confident that you will qualify for a new loan and be able to refinance or buy a new home. If you have any further questions please don’t hesitate to contact us. We can get you in touch with a local mortgage company to help answer your questions and they can even give you a free pre-approval so you can see how much home you can afford.