In the early to mid 2000s, back before the housing bubble burst it seemed that anyone with a pulse could get a mortgage. While that wasn’t entirely accurate, it was true that qualifying for a home mortgage was easier than perhaps it should have been for some people.
Now the pendulum has swung the other way. This more rigorous lending environment has given rise to a few mortgage myths. Many people now believe that without outstanding credit, a sizable down payment, or minimal debt, they just won’t be able to qualify for a home loan. Not so!
Myth #1 – You need great credit to get a mortgage
Not so! First, find out what your credit score looks like (to get your actual FICO scores, your best bet is to have a mortgage professional pull it for you.). Many lenders will consider scores in the following way:
- Excellent: high 700s or above
- Good: low to mid 700s
- Fair: mid 600s low 700s.
Under 600, you may have problems but there are many loans available for all the above.
Myth #2 – You need a big down payment
In fact there are many loans available with 10% down at great interest rates and if you are really cash poor, the FHA offers loans with as little as 3.5% down although they cost a little more with associated insurance costs. Also note that if you are a veteran, loans are available for you with no money down.
Myth #3 – You can’t get a loan if you have too much debt
While you might have a credit card or two, a car loan, and student loans, that might not be too much debt for you to qualify for a mortgage. The only real way to figure that out is to calculate your debt‑to‑income ratio (DTI), which can be as important to a lender as your credit score. If your monthly debts are $1,500 per month and your gross monthly income is $6,000, your DTI is 25 percent.
A DTI of 28 percent and below is considered outstanding, but you can qualify for a conventional or VA mortgage if your monthly debt payments are under 45 percent of your gross income. Not there? Consider an FHA loan, which wants your ceiling to be below 57 percent.
There are many myths about the home buying process. To get the real picture, you need to talk to the experts. I work with a wide range of professionals in the real estate business and I will be happy to refer you to a reputable local lender.
And I’m always happy to answer any of your questions about any other aspect of real estate. Just call or email me any time for a fast response.