Well, according to all the news sources, that’s the perception of many, and that’s because we’ve all been coddled by home mortgage qualifying relaxation since 2004. But we’ve really gone back to basics.
The requirements for home mortgages are now back to where they were before 2003. Anyone applying for a loan had to meet the following criteria:
• Income (proven) that the borrowers earned enough money to cover not only the mortgage, but also other expenses such as utilities, groceries, parenting, cars, insurance, etc.
• Reported Income: Are you kidding me? Bankers never trusted this data, verification was always required. Under previous guidelines, a borrower could indicate the amount required 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 larger down payments.
• 2-year tax returns and W2 to validate income
• Good credit
• Cash for down payment, prepayment and closing costs – again bank statements or other financial statements as proof.
• Front-end rates had to be between 28-30%, back-end rates 36-38% (and if everything else was great, we could sometimes get approvals with a back-end rate of 40 %).
- front end ratio – amount of income to cover mortgage payment and any escrow accounts – PITI – principal, interest, taxes, insurance and homeowners owed.
- background ratio – amount of income needed to cover the mortgage and any recurring expenses such as credit cards, alimony, car payments. Making sure the borrower had enough money each month to pay for basic needs.
• Minimum 5% down, 20% to eliminate PMI (Private Mortgage Insurance) required by lenders for less than 20% down.
100% financing and in some cases 105% financing never knew about the incredibly low interest rates 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’s a difference between stretching your income a bit and buying a home beyond your means, especially with an adjustable-rate mortgage. We should all be thankful for the due diligence now required to buy a home mortgage.