As you may have heard, mortgage lenders have pretty tough underwriting requirements right now.  It’s a little about amounts and a little about procedures.

Amounts

In general, down payments range from 3.5% for an FHA insured loan to 10% to 15% down for some conventional loans and 20% down for an investment property.  Down payments under 10% usually require that the borrower pay for Mortgage Insurance, to guarantee the loan.  This can add a couple of hundred dollars to the monthly payment during the first few years.

Of course interest rates recently have been as low as 3.75% for an FHA loan on a 30 year amortization.  Fifteen year amortizations are even less!

Plan on a 46% debt-to-income ratio.  That is, all of your payments for revolving credit (charge cards, boat or car payments, furniture payments) and your total mortgage payment (including Principle, Interest, Taxes and Insurance) when added up, come to 46% or less of your net household income.  If you have rental properties, your mortgage payments on the them are counted in the debt, but their income is counted only if they have been rented for a full year, or if the lender is more lenient, they will count 75% of the income, figuring a 25% vacancy rate.

Investors may be required to document 6 months of “reserves” to cover the mortgage payments if they can’t rent the property for a while.

Procedures:

1.  A requirement to produce 6 months worth of bank statements or other investment statements showing that you have had your down payment available.  They look back a few months, to be sure you’re not borrowing it.
2. Leases, if you own rental properties, to document the income you receive from them.
3. One to two years of tax returns, or W2s.
4. They will “pull” your credit reports, of course.
5. Other forms of identification and documentation.

As you can see, it is best to interview with a mortgage banker or mortgage broker BEFORE you begin shopping for real estate, to be sure you are shopping in the price range that your income and expenses will support.  They are experts at helping you understand what it takes to qualify and at finding the loan “product” that suits you best.  And of course, this consultation is free to you.  Knowledge is power and they give you knowledge for free!

So check with your bank, because if they have mortgage bankers there, you may get some fees waived and check our Super Service Directory (there’s a button on the home page)  for the names of a few mortgage brokers and ask people you know who have recently refinanced or purchased using a loan whom they would recommend.

Or just give me a call ;-)                                                                           Carolyn Ward

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