- Borrowers must have a 38 percent or less debt-to-income ratio and a credit score of at least 620, mortgage brokers say. A higher debt-to-income ratio will result in the loan being denied, and borrowers with credit scores below 720 can expect to pay higher upfront and interest costs. Home loan applicants must have a down payment equal to 10 percent of the loan, and the property appraisal must reflect a 90 percent loan to value.
- Before the crash of the real estate market in 2007, qualifying for a home loan was relatively easy. Buyers with indebtedness of up to 50 percent of their income and credit scores as low as 500 were able to obtain financing. Things changed rapidly in the following months, and the once lax requirements became virtually inflexible. Lenders once pushed through questionable loans, a practice widely held responsible for the crash; now borrowers must meet every requirement individually.
- Fannie Mae, Freddie Mac and the Federal Housing Authority provide conforming home loans; most Americans use this type of loan to purchase a home. The Veterans Administration provides conforming home loans to qualified U.S. service men and women. Properties valued at $417,000 or more generally cannot be purchased with a conforming loan. Applicants seeking larger home loans generally obtain financing from portfolio lenders and real estate investment groups. Borrowers seeking to finance damaged property for rehabilitation or whose credit score, loan-to-value or debt-to-income ratio doesn't meet the requirements for a conforming loan often approach specialized investors and groups for a high-cost, high-interest hard-money home loan.
- All mortgage bankers/brokers are not created equal, and whom you work with is second in importance only to what home you chose to buy. Take time to do your homework; ask friends, relatives and co-workers about their home-buying experiences. Talk to top real estate agents in your area and ask for their recommendations; the best usually work with the best. Interview prospective bankers/brokers thoroughly; determine their level of education and experience. Find out what professional organizations they belong to and how flexible their lenders are. Ask for and check references.
- Be aware of the pitfalls. Jeremy Forcier, branch manager of Benchmark Mortgage in Petaluma, California, warns, "Never pay upfront fees of more than $100. I've seen application fees up to $700, but there's no reason for it. You should only have to pay for the credit report." Forcier also admonishes buyers to avoid home loans with prepayment penalties. Effective May 2009, the Home Valuation Conduct Code prohibits mortgage brokers from ordering or collecting money for appraisals; beware of brokers who make an attempt. "And never call ads or reply to direct mail; you'll get somebody in a cubicle with very little knowledge of real estate," says Forcier. Take your time, do your homework and find a professional to help you meet all the requirements to obtain your home loan.
