Shockingly low home prices and affordable interest rates have combined to set the scene for a historically ideal buyer’s market throughout the United States. Unfortunately, lenders aren’t doling out loans to just anyone these days; as most continue to employ strict borrowing standards that favor those with near-spotless financial reputations.
Ron Phipps, president of the National Association of Realtors, says he understands just how frustrating it is for creditworthy prospective homebuyers in today’s real estate climate. According to Phipps, people with steady jobs who are willing to live within their financial means should be given a chance at homeownership; and he says his organization is working tirelessly to encourage banks to return to what he calls sensible lending standards.
Unfortunately, no one knows how much longer lenders will remain risk averse. In the meantime, if you want to qualify for a home mortgage, you’ll have to live up to whatever mortgage requirement your lender imposes. Though standards may vary from bank to bank, most agree that borrowers need to fulfill the following minimum requirements.
A good credit rating
To get the best possible mortgage rate, you’ll need a minimum credit score of 720. If your rating falls between 675 and 720, you may not be able to get a top-notch rate, but you should still be able to qualify for a loan. If your credit is under 675 but above 620, you may still be able to get a loan if you can meet other requirements; however, if your credit falls below 620, you aren’t likely to qualify for any type of private mortgage loan.
Down payment requirements
No down payment loans used to be en vogue prior to the mortgage crisis. Nowadays, to qualify for a mortgage, you’ll need to put up a minimum 20 percent down payment. You’ll also need to have enough money for closing costs and other up-front fees.
To demonstrate the ability to pay your monthly mortgage payment, you must have worked at the same job for at least two years. You’ll also need to show that your income is high enough that your monthly housing costs will not exceed approximately 28 percent of your total gross monthly income.
Loan to value ratio
The foreclosure epidemic has led most lenders to demand a loan-to-value ratio of 80 percent to ensure that the home value exceeds the mortgage balance. This is intended to give the bank some assurance that it will be able to recoup at least a portion of a loss in the event of a default.
Though the preceding standards are pretty typical in today’s lending climate, they may not be the only ones you have to meet to secure a loan. Each lender has its own policy and you may see one mortgage requirement at certain lenders and not others.