What Matters When Applying for a Mortgage

What do the banks look at when they are considering your loan request?

Are there options if you can’t get approved for a conventional loan for your home?

Since the housing bubble burst, many Americans found it harder and harder to get approved for a home loan. The good news is that some banks are relaxing requirements as the housing market returns. There are government requirements that must be followed and while this is disappointing news to some future homeowners, it doesn’t have to be.

Buyers can equip themselves with the knowledge of what they need to get approved for a loan. If they can’t get approved, there are other mortgage loan options available. Here at the Jamey Kramer Group, it is our passion to help you get into the house of your dreams. Today, we are going to be sharing with you what banks are typically looking for when they are deciding on your mortgage loan.

Three factors that the banks typically consider include:

  1. Cash is King
    Have you ever heard the saying, Cash is King? Well, when purchasing a house that saying rings more true than ever. Before the housing bubble burst, you might have been able to get into a home without putting down cash. Now, however, you have to have some cash to put down. For example, FHA loans have typically required the lowest amount of cash for a down payment of 3.5%.
  2. Debt vs. Income
    According to News Day, regulations will go into effect on January 1, 2014 that will “prohibit banks from approving mortgages for anyone whose debt-to-income ratio is higher than 43 percent.” This rule is part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 which mandates that lenders need to “more closely scrutinize borrowers' financial information to make sure they can afford a loan.” 

    This rule is called The Ability-Repay rule and is also known as the Qualified Mortgage rule. It essentially means that a borrower’s total debt liability which includes housing should not exceed 43% of their income.
  3. Credit Scores

    According to Ellie Mae, a provider of on-demand automation solutions for the mortgage industry, 32% of closed loans in September 2013 had an average FICO score of less than 700 compared to the 17% of one year ago. Market Watch reports that banks are relaxing mortgage requirements and that “home buyers no long need perfect credit to score a loan.” Generally, the lowest credit score lenders are willing to accept is from 620 – 640.

    Market Watch also reports that:
     
    • Conventional Loans: Conventional mortgage lenders are generally looking for a credit score of at least 740.
    • VA Loans: Most VA lenders are looking for a minimum score of 620. 

    The Federal Housing Administration (FHA) does not impose a minimum credit score, so it is “left strictly to the lender” and “most lenders set a minimum score of 640, but a few go to 580,” according to the Daily Herald.

Now you have a better picture about what banks are looking for when approving home mortgages. We would love to help you find the house that you are dreaming about. When you are ready to purchase a house, please make sure to call our office at:

 248-348-7200