Today’s real estate market is much different than it was five years ago, or even last year at this time. It is becoming increasingly more difficult for home buyers to make their dreams of home ownership come true, simply because of the changes made in trying to obtain a mortgage. There are certain requirements now in place that were decided on to avoid the housing issues that were becoming more and more prevalent. Although interest rates are at all time lows and have been for a while now, it can still be trying for buyers to qualify due to stricter underwriting.
All of that said, there are things you can do and ways to prepare ahead of time that will help you to avoid the difficulty with being approved for a mortgage in today’s real estate market.
In order to be eligible for the lowest interest rates possible, lenders are expecting to see a credit score in the 700 or higher range. Improving your credit score should start with knowing where you currently stand. From there you will need to make sure you are paying bills on time and lowering your debt to income ratio as much as possible.
In order for lenders to take an honest look at what you bring to the table, they will need to be able to verify that your income is at least enough to cover the loan you are asking for. The easiest way for an underwriter to look at verifiable income is on a W-2, which sometimes makes it more difficult if you are self-employed.
In today’s real estate market, lenders need to see that you have available cash reserves in addition to the down payment and closing costs. Keep in mind that one of the things you can use to show you have cash reserves is a retirement account.
When mortgage lenders are going through the process of determining your eligibility for a loan, one of the things that comes into play is an appraisal. If the appraisal comes in for less than the purchase price, the lender might not give you what is needed to purchase the home.
Debt to Income Ratio
Financial experts generally agree that debt expenses should be 25% or less of your income. A ratio of 10% or less is great. Anything above 25% waves a red flag in the face of lenders in general. In that case, you will need to reduce or eliminate debt. So, what is your debt to income ratio?
• Review last month’s bills. Add up all the fixed expense items (rent, mortgage, car payments, child support, loan payments, etc.)
• Review your credit card bills. Add up the minimum payments owed on each card.
• Figure your monthly take-home pay (net salary).
• Now divide monthly fixed expenses by monthly income.
What percentage did you get? If it’s 25% or greater, then it’s time to take action to reduce your debt.
Making your dreams of home ownership come true is our main goal and we are prepared to help you in any way that we can. Please don’t hesitate to contact me, Barb Bottitta, for any and all of your Lehigh Valley area questions, as well as real estate needs. You can also connect with me on my Facebook Page.