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Getting a mortgage loan
can be a lengthy and sometimes exhausting process, but it is totally possible. There are two different debt-to-income (DTI) ratios that matter when it comes to determining if you can get a loan for a mortgage. The starting ratio compares your total housing costs (including mortgage payments, taxes, and insurance) with your income.Ideally, your housing expenses should represent less than 28% of income. The final ratio compares total debt, including mortgage costs and other bills, to income. Ideally, that proportion should be below 43%. In general, if you borrow more than 80% of the value of your home, lenders will charge you for private mortgage insurance (PMI) to protect them from losses.
However, if you've made a 20% down payment, there should be enough equity in the home and lenders should have no problem getting their money back if they have to foreclose. Even so, if you want to invest very little or no money, many lenders won't be willing to grant you a loan for 100% of the value of your new home, especially if your credit credentials and other financial credentials are imperfect. Mortgage loans are certainly harder to obtain due to the current recession, as lenders subject buyers to much greater scrutiny. Chris Mason, owner of America's Home Loans in Petaluma, California, said the biggest mistake borrowers make is that they need a down payment of 20 percent of the purchase price of a home to get a mortgage.
An FHA loan can be used to finance one- to four-unit homes, FHA-approved condominiums, cooperative units, and prefabricated homes permanently attached to land. The least scrupulous lenders even offered something known as a NINJA loan, or a mortgage with no income, no work or assets. The average response of survey participants was 40 percent, meaning that they thought that lenders would only approve their loan applications if their total monthly debts, including new mortgage payments, did not exceed 40 percent of their monthly gross income. You may also find yourself working with an insurer instead of the loan officer who has helped you up until this point. The final ratio takes into account your mortgage payment, in addition to all other monthly revolving debts, including car loans, credit card payments, and other loans. In those days, legitimate banks and lenders offered loans without documentation (mortgages where the consumer tells the bank how much he earns, which is then not verified) and loans with little documentation, where some checks were done (perhaps by checking the pay stubs), but not much.
FHA-approved lenders also use the Credit Alert Verification Reporting System (CAIVRS) to confirm that you don't have any delinquent federal debt such as student loans. A home is a major purchase - perhaps the most important purchase you'll ever make - so it's no surprise that lenders research the finances of borrowers before making mortgage loans. Not only do lenders use your income to predict how likely you are to pay your loan balance but they will also analyze your past history of paying your bills. If this is an interest-only ARM - that is for a certain period your payments only go to interest not to the principal of the loan - you are almost guaranteed that your payment will increase once the rate-locking period ends. VA borrowers must show that they earn a stable income that covers not only their mortgage and other monthly debts but also living expenses based on their family size the amount of the loan the region of the country they live in and the expected maintenance expenses of the home. Compliant and FHA loan limits have increased again giving homebuyers additional borrowing power as home prices remain. Pre-approval involves much more documentation and a rigorous credit check; mortgage prequalification is less formal and is basically a way for the lender to tell you that you would be a good applicant. Fixed-rate mortgages are popular because the mortgage interest rate doesn't change over the life of the loan.
This gives military borrowers an advantage over non-military borrowers who may need complicated and expensive gigantic loans (loans that exceed conventional compliance limits) to buy homes in expensive areas of the country.
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