by: Gaye Jones ~ Senior Mortgage Banker at FBT Mortgage
Since the housing crash of 2008 many things have changed, but probably nothing as much as the mortgage industry. In the early years (I’m talking the 70’s & 80’s) you went to your local bank and they had a committee that looked at your financial history and decided whether they would offer you a mortgage. Then in the good years (Late 90’s early 2000’s) the industry resembled the gas wars of the 70’s. As each new program came out, another investor would come out with something better and easier to qualify for. At some point it had to crash…..which it did!
Today, some of those special programs are coming back. If you have enough down payment, a low debt load, and decent credit there are some specialty programs that you may qualify for. That is, if you don’t mind a higher than par interest rate.
Most lenders only have the “conforming” loans. Those are VA, FHA, Fannie, Freddie, and USDA. These are all “insured” programs that allows less risk to the banks & mortgage companies. However, you do have to follow their guides. And EVERYTHING is verified, and re-verified. For those programs there are credit guidelines, guides regarding your employment, guides on how we figure student loan payments (and each agency is different), but what all of them have in common is a guideline that’s called a “qualified mortgage”.
It’s simple math, how much do you make each month & what is your debts? If your income and debt load do not fit into the percentage allowed, you only have two choices. Raise your income or lower your monthly payments. I have found that there is some differences in what different banks & mortgage companies allow, but Fannie & Freddie never allow more than a 50% debt load. FHA will allow up to 57% depending on other strengths. VA is all about “residual” income, how much money you have left after taxes, day care, etc. And USDA has very strict guides on what they will allow in debt, normally no more than 41%. And when we talk about debt load, we are including housing, installment, revolving debt plus child support or alimony only – no insurance, utilities, or other household expenses are considered.
Your best bet if you are considering purchasing a home is to get with an experienced loan originator 3-4 months before you start our house hunting. And if you are considering selling your home to buy a new home I cannot stress how important it is to talk with a lender before listing your home. I have had customers that sold their home and then couldn’t qualify to purchase because they didn’t know or understand the changes.
Gaye Jones is a Senior Mortgage Banker at FBT Mortgage, LLC. NMLS #197176. If you have more questions you can reach her at firstname.lastname@example.org.