Trinity Realty, 104 N Trinity, Decatur TX 76234 (940) 627-4427
Home Buying Obstacle #1: Finding a Down Payment
Unless you're independently wealthy or just won the lottery, you will
probably need to get a mortgage. Only VA loans, available to veterans, let a
buyer put down zero. All other loans require a down payment. The two
most popular types of mortgages are FHA loans and conventional loans,
which require minimum down payments ranging from 3.5% to 10% of the
sales price.
Home Buying Obstacle #2: Obtaining a Minimum FICO Score
The two magical numbers are 620 for FHA and 720 for conventional loans
with mortgage insurance. If your FICO score falls below that number, you
may not qualify for those mortgages. For conventional loans without
mortgage insurance, your FICO can dip as low as 620, but the pricing is ugly.
To find out your FICO score, you should ask your lender to run your credit
report. You can obtain a FICO score online, but it will cost you, and it most
likely will differ from the score your lender obtains. Your lender will pull
your credit scores from 3 credit reporting agencies and take the middle
FICO score.
Home Buying Obstacle #3: Meeting Lender Ratios
Most lenders expect a buyer to have a maximum 33% front-end ratio. This
means your mortgage payment, plus taxes and insurance (PITI), cannot
exceed 33% of your monthly gross income. If you earn $5,000 a month, the
maximum PITI payment for which you may qualify is $1,650.
The back-end ratio is trickier. This involves adding together your PITI
payment with all monthly revolving debt payments. That percentage of
your gross monthly income should fall between 41% and 50%, depending
on the type of loan and lender. With mortgage insurance, your highest
back-end ratio cannot exceed 41%, which means to qualify for a higher
back-end ratio, you may need to put down at least 20%.
Home Buying Obstacle #4: Receiving an Appraisal at Value
The Home Valuation Code of Conduct, HVCC, became effective May 1, 2009,
and applies to all conventional transactions. Since January 1, 2010, it now
applies to FHA transactions as well. It's a well meaning process that is
flawed.
In the past, a lender could select its own appraiser. That appraiser was
generally experienced, knew the neighborhood and had appraised many
homes in specific areas, which typically would result in a fair and balanced
appraisal. Now, appraisal management companies pluck an appraiser at
random from a pool of appraisers. Your appraiser could be from another
area or unfamiliar with the neighborhood, which often results in a low
appraisal.
If the appraisal does not come in at value, and if the seller refuses to adjust
the price, buyers with an appraisal contingency can either walk away from
the transaction or pay the difference in cash.
Home Buying Obstacle #5: Satisfying Loan Conditions
Underwriting can be frightening. An underwriter reviews the file and can
make demands. These demands can include more documentation, a review
appraisal and, even then, the underwriter could reject the loan for a variety
of reasons.
If you have remarried, for example, and your former spouse had owned a
home that went through foreclosure or a short sale, if your name was still
on the mortgage, you could be disqualified from buying a home with your
new spouse. The way to increase the odds of underwriting approval is to
disclose everything about yourself and your financials to your lender, and
make sure the loan officer has been in the business long enough to foresee
future problems before you get that far.
Home Buying Obstacles
Open the Door to More Possibilities
Located on Decatur’s Historic Courthouse Square
(940) 627-4427