This article is found at: http://realtytimes.com/rtpages/20090304_homebuyer.htm
on March 4, 2009
It
seems like every day someone is asking about why it is so hard
to get a real estate loan. Just two years ago anyone, and I mean
anyone, could get a loan to buy a house or condo. Well, the times
have changed and rules from the lenders have changed right along
with the times.
Think
for a second of home loan guidelines being similar to the old
pendulum clocks. Just a couple years ago the pendulum was to the
left, and it was probably too easy to get qualified. But now the
pendulum has swung all the way to the right, and it is very difficult
to get qualified. Often, the lending industry swings its requirements
from one extreme to the other without stopping at a sensible middle
ground. For now we will not explore the cause of this change,
only the new requirements. Keep in mind though that these will
change over time as well, hopefully to a more moderated middle
ground but only time will tell.
For
those looking to get qualified in this tough market, please note
the criteria below:
Fico
Scores
These must be better than average (600+), and when the credit
report is run there must be no Bankruptcy (BK), and likely no
"collections" of accounts will be allowed.
Down
Payments
Buyers must have some money to put down, no longer will the lenders
approve 100% financing, most likely the lenders will require 10-20%
down (except FHA which allows only 3% (3.5% in 2009)).
Ample
Income
All income will need to be verified with pay stubs two year period
and IRS and State tax filings for 2-3 years. Then they will calculate
your debt-to-income ratios (looking to see that you can really
make the payments). Each lender has different ratios they will
pass or disqualify with. As a general rule, these days they are
wanting to see much smaller debt-to-income ratios. In other words,
the banks want to see borrowers with more income and less outstanding
debt obligations.
Stated
Income
This (with no verification) is no longer available, meaning quite
a hardship on the self-employed, but lenders are very risk averse
now. The only exception is if buyers have a very hefty down payment
like over 30%.
Proof
of Funds
A few months worth of recent bank account statements will be required
to show that money is really available for closing costs and down
payments.
Reserve
Funds
Many lenders require that the borrower have reserve cash on hand
to cover two to six months worth of payments.
Non-Occupants
If the property is not going to be the home of the borrower (like
a rental) then most lenders will increase the interest rate on
the loan.
Limited
Holdings Restrictions
are also placed on many borrower that this property will not increase
their rental holdings to more than 4 units. Lenders are very suspect
of investors that might be over leveraging themselves.
Obviously,
only very qualified people can meet the above criteria, and that
is just what the lenders want in a time of uncertainty and massive
losses. For the time being they can’t justify making any more
high-risk loans. Hopefully, knowing what is needed in advance
to get approved, buyers will understand that it is critical to
prepare early and get their ducks in a row before starting the
home buying process. For those lucky enough to be qualified in
today’s market, a wide range of opportunity awaits them.
