5 New Mortgage Obstacles
Mortgage rates are lower than ever, but that doesn't mean its any easier to get a new mortgage. Here are five common hurdles on the track to getting a home loan.
- Down payment. You should anticipate paying anywhere between 3% and 10% of the sales price up front, unless you are seeking a VA loan (for veterans) which does not require a down payment.
- Credit score. If your FICO score falls below 620 for FHA and 720 for conventional loans with mortgage insurance, you may not be able to get these loans. You can get your FICO score online (at a price) or from your lender.
- Sufficient income. Your total monthly mortgage payment, plus taxes and insurance, cannot exceed 33% of your gross monthly income. This is called a front-end ratio. Add together your total monthly payments on all debt (e.g. credit cards, car payments, mortgage, etc.), and that number should fall between 41% and 50% of your income. This is the back-end ratio.
- Fair appraisal. In the past, a lender could select the appraiser. They generally knew the neighborhood and were experienced in the area, which resulted in a fair appraisal. Now, thanks to new regulations, appraisers are chosen at random, which often results in a low appraisal. This leaves the buyer with a choice: pay the difference in cash, or just walk away.
- Satisfy the underwriter. This can be a scary experience. The underwriter reserves the right to reject the loan for a variety of reasons, some of which may seem a bit unfair. The best way to ensure underwriter satisfaction is to disclose everything about yourself and your financials to your lender. Also, find a loan officer who has been in the business long enough to foresee potential problems before you get that far.
(photo by julie.froo)