Mortgages Are Available—But Do Your Homework First

The big scare for buyers today (and sellers) is whether or not homeownership is affordable as well as attainable. 

Affordable is the easy part.  Financial institutions look at income first, for affordability.  They base their qualifications on that income's relation to the monthly mortgage and real estate taxes, coupled with other recurring obligations, such as credit cards, car payments, etc.  Most pre-qualification and pre-approvals are based on the aforementioned.

When I began my real estate career in 1985, the calculations were somewhat simpler:  if a buyer had no other monthly obligations but the housing expenses, they could spend 28% of their income on such and if they did have the recurrences, a 36% calculation was used.  And if a buyer had their own business and you had 30% or more down, income was not even verified.   It was so simple that, as opposed to what we see today, the Realtor would not only qualify the buyer, they would also complete the mortgage application with the buyer and deliver it personally to the bank. 

Then we came to the real estate “go-go” days 5-8 years ago where money flowed like the “Mighty Mississippi”.  Calculations were changed drastically by the financial institutions so much so that there were some programs in which the housing expenses could be up to 60% of your income.  And money was given out freely to buyers with programs that included interest-only, balloon or adjustable type, with no money down, and principle to kick in within a time limit.

The pendulum has swung in the complete opposite direction, finding us where we are now, the difficulty of the obtainment of a mortgage. 

“The lending industry has gone back to basics and now more than ever, it's important for a buyer to know how much they qualify for prior to searching for their next home,” states Matt Keane, Branch Manager of Superior Mortgage, Madison, “The liberal guidelines under which many people obtained a mortgage in the past no longer exist.”

“Lenders look at three specific areas when evaluating a borrower’s credit worthiness: income, credit, and assets,” he continues.  “A borrower in today’s market needs to be able to verify their income that will support an acceptable debt ratio (amount of monthly income vs. your monthly debt obligations). They also need to prove assets that can be used as a down payment as well as have a satisfactory credit profile with a supporting credit score. Lacking in any one of these three areas can make the home-buying process a daunting task.”

It certainly is more difficult for a buyer to get a mortgage but it is far from impossible and it may just be easier than one thinks.  There are programs out there that fit many, some with 3.5% down-payment.  The current mortgage rates are hovering at an incredibly low 4.5% (or better) for a 30-uear fixed rate.  However, buyers NEED to speak to a mortgage loan officer and a Realtor before they determine if and what they are going to buy.  The loan officer will give a buyer an idea of affordability and some will even give the buyer some advice on how to fix their credit if it does not fit today’s mortgage guidelines. The Realtor gives the buyer their largest housing choices to choose from as well as, and most importantly, the professional assistance to get them into a home through their skills.     

Homeownership is attainable today. It just takes a little more work and the assistance of the experts to get you to that American Dream. And, with the prices as they are, the timing is perfect. Best of Luck!

Jeffrey David Halpern

jeff@mycoccia.com