How do I know if I qualify to buy a house

How do I know if I qualify to buy a house?

First let’s talk about some of the predictions for borrowing money.  Studies show us that:

In 2018 the average 30-year fixed mortgage rates were around 4.63% then in late 2020, they went as low as 2.82%. The Federal Reserve expects to keep interest rates low until at least 2023, meaning that buyers have a few years to score a pricier property at a lower monthly payment.

STEADY, LOWER INTEREST RATES remain in the future.

Can I really qualify to buy a house now?

How can I find out if I can qualify to purchase a home?  How much can I borrow?  Who do we ask?  The answer is you need to visit with a mortgage loan officer.  It could be at your corner bank but there are many local lenders (local is the key) to interview or remember you can always ask your real estate professional for some recommendations.

What does a loan officer do?

Loan officers evaluate, authorize, or recommend approval of loan applications for people and businesses. Most loan officers are employed by commercial banks, credit unions, mortgage companies, and related financial institutions. Mortgage loan officers must be licensed.

Lender   =   an organization or person that lends money

I am not the expert on loans and credit.  The financial experts work at this daily and keep up to date on any new requirements or changes in the loans, the process and procedures.  You should be consulting with a professional.  However, I know what you need to look for in that professional expert.

• Communication skills are top on the list of skills.  You want to understand the process and where you are at in that process.
• Education You want to be educated on the types of loans and be involved in the decision making process.  What programs are available to you? Which program is best for you.   If you still need to work on credit or some other issue can they help you with a plan to reach your goals?   If your lender is not educating you so you can make a good decision are they choosing the right program for you or just the one that could make them the most money?
• TRUST—do you trust this person to help you with these huge financial decisions?
• LOCAL-Real estate markets are localized and therefore a lender that is not familiar with the area may give you poor advise or not be able to work for you.  Visit with a few loan officers or ask your real estate professional for a few recommendations.  How to Choose Your Real Estate Professional

What do lenders look for?

Income is the most obvious but it’s really the relationship with your income to debt.  What proportion is used for housing and what other debts do you have on a monthly basis.

Two definitions you should know:     Front end ratio and Back-end ratio.

Front end ratio or also known as:  Mortgage to Income Ratio indicates what portion of your income goes toward your mortgage payments.  You can calculate this by dividing your anticipated monthly mortgage payment by your monthly gross income

Mortgage Payment divided by your Income = Front End Ratio

$1000 anticipated monthly mortgage payment divided by $3000 monthly income = 33% Front End Ratio

Back-end Ratio is also known as the Debt-to-Income ratio, is a ratio that indicates what portion of a person’s monthly income goes toward paying debts. …car payments, credit card payments,  etc.

Lenders use this ratio in conjunction with the front–end ratio to approve mortgages.

 Example:

Credit Card debt                            50

Student Loan debt                       125

Insurance                                      50

Total                                 $          225

Mortgage Payment            $       1000

                                           $       1225                     40% Back End Ratio

Knowing these figures will help your lender know what finance program would work better for you. While each lender sets its own qualifying standards, what’s generally desirable is a debt-to-income ratio of 36% or less, and a housing expense ratio of 28%         Please note:  Not all lenders offer the same loan programs.  Loan programs from the U.S. Department of Agriculture, Veterans Affairs and the Federal Housing Administration have very stringent criteria, which may also include specific caps on your income, regardless of how low your debt levels are and not all lenders will offer these programs.

Types of Mortgage Loan Programs  

Conventional Loan program must have a minimum of 3% (3-20) for a down payment and strong credit and employment history.  Lenders may require you to pay PMI (private mortgage insurance) if you put down less than 20%.  This could raise your monthly mortgage payment by a few hundred.  Your back-end ratios are the most important 36-43%.  Loans are not insured by federal government.

There are three (3) government agencies that back mortgages.  The government isn’t a lender but their assistance through these loan programs allows more people to become homeowners!  They are: (1) FHA Loans:  Federal Housing Administration, (2)  VA Loans:  U.S. Department of Veterans Affairs and (3) USDA loans: U.S. Department of Agriculture

FHA Loan (Federal Housing Administration) is a government backed/insured loan for borrowers with less than spotless credit or no credit at all.  Many borrowers would not be homeowners if they had to wait to save a large down payment but with FHA you can bring a down payment of 3.5% of the purchase price.    31% front end and 43% back-end ratios make it possible for more borrowers to qualify for a home!

Always ask your lender about the lending costs.  While a conventional loan has PMI (private mortgage insurance) if you don’t have 20% down, FHA has two (2) mortgage insurance premiums.  One is paid up front and the other through the life of the loan, if you don’t bring a 10% down payment.

VA Loans: (U.S. Department of Veterans Affairs) is designed for eligible members of the U.S. Military both active duty and veterans and their families.  It is a low interest loan and do not require a down payment.  There is no PMI (private mortgage insurance) and closing costs are minimal and if agreeable, can be paid by the seller.  There is a funding fee however, this fee can typically be rolled into the loan along with any closing costs the seller isn’t willing to pay.

 USDA Loans: (U.S. Department of Agriculture) or “rural” loan, assists low to moderate income buyers to purchase homes in the eligible rural areas.  Some USDA loans do not require a down payment.

Ask an expert!  Don’t be afraid to sit down with an expert loan officer.  Contact your professional real estate agent for some names.  Chances are they have worked with many lenders and the different programs and can provide some referrals.  How to Choose Your Real Estate Professional

 This should help a little, but if you gain anything at all from reading this, I hope it gives you the courage to step out with this information and visit with a loan officer.  Let him/her know what your goals are in being a homeowner.   A really good lender will help you set those goals and should be checking in with you to encourage you along towards your homeowner goals!!

I would be happy to help you with a few names of some really great loan officers in the area.  My sons and I have worked with many good professionals and I bet we can match one up to You!  Give us a call!

About the author: The above Real Estate information was provided by Cynthia Yannitelli, of the Yannitelli Group at Better Homes & Gardens Real Estate, BloomTree Realty.  Cynthia has managed real estate brokerages and trained real estate agents for over 20 years and started her real estate career over 30 years ago.  The Yannitelli Group is Cynthia and her sons, Neil and Nicholas, in a family-owned real estate group enjoying what they do and working with each other.  Cynthia and the Yannitelli Group can be reached via email at yannitelligroup@gmail.com or by phone at 928-251-0025.