Well, according to all the news, that is the perception of many and that is because we have all been spoiled by the easing of the requirements for home mortgages since 2004. But, in reality, we have gone back to business. basic.
The requirements for real estate mortgages are now back to where they were before 2003. Anyone applying for a loan had to meet the following criteria:
• Income (proven) that borrowers made enough money to cover not only the mortgage, but other expenses, such as utilities, groceries, parenting, cars, insurance, and so on.
• Declared Income: Are You Kidding? The bankers never relied on this data, verification was always required. Under the above guidelines, a borrower could indicate the amount needed to obtain the loan. As far as I know, state revenue is gone. If you can get a “stated income” home loan, be prepared to pay higher interest rates and provide higher down payments.
• 2-year and W2 tax returns to validate income
• Good credit
• Cash for down payment, prepayments and closing costs, again bank statements or other financial statements as proof.
• Front-end ratings had to be between 28 and 30%, back-end ratings between 36% and 38% (and if everything else was great, we could sometimes get approvals with a rating of 40% retracement).
- Front-end relationship – amount of income to cover mortgage payment and any escrow accounts – PITI – principal, interest, taxes, insurance and homeowners owed.
- Back-end ratio – amount of income required to cover the mortgage and any recurring expenses like credit cards, alimony, car payments. Make sure the borrower has enough money left over each month to pay for their basic needs.
• Down payments at minimum 5%, 20% to eliminate PMI (private mortgage insurance) required by lenders for less than 20% down.
100% financing and in some cases 105% financing was never heard of for the incredible low interest rates that we are still experiencing.
In short, we are now back to basics and this is good for all of us: sellers, buyers and bankers. There is a difference between stretching your income a little and buying a home far beyond your means, especially with an adjustable rate mortgage. We should all be grateful for the due diligence now required to purchase a home mortgage.
