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It may not come as a surprise that the American public is still somewhat confused about what is really necessary to qualify for a home mortgage in today’s market. A common misconception is that you must put down a minimum down payment of 20% of the purchase price. In actuality, there are many loans being written today with a down payment of 5% or less for a fixed rate mortgage. Another common misconception is that a credit score over 780 is required to buy a home. In reality, the average FICO scores of approved conventional and FHA mortgages as reported from the latest Ellie Mae Report are much lower:

With regards to mortgage rates, they are at levels unimaginable a generation ago. But for many would-be home buyers, a low-rate loan had been out of reach denied by lenders still cautious about the housing bust. However, that finally began to lessen in 2015. Due to rising home prices, less stringent down payment requirements and new rules that limit lenders liability when loans that meet certain criteria go bad, borrowers are encountering fewer obstacles when seeking a mortgage. As a result, this has opened the door to those buyers who have been previously shut out of the market providing more options for all buyers.

To qualify for a mortgage in today’s market, lenders will generally require the following:

• Sufficient money for the down payment (up to 20% of the purchase price)
• Two years of steady employment in the same job or industry.
• A good credit score as previously outlined.
• A monthly income that is 2-3 times higher than your expected mortgage payment.

Whether you are buying your first home or trading up, it is important to note that the stronger your qualifications, the lower the interest rate that you will be able to secure. Borrowers with a credit score of 740 or more and a down payment of at least 25% will get the best rates. Borrowers who want to secure the best rates should do the following:

• Get Pre-Approved:  Not only do sellers often prefer buyers who are pre-approved by a lender, making their offer more attractive, a pre-approved mortgage can also help minimize closing related issues. With a real pre-approval, a lender will pull your credit score and submit supporting documentation to their underwriting system. This allows the lender to give you more accurate terms based on your actual credit score, debt obligations and income instead of relying on estimates. It also expedites the process when you go to contract.
• Maintain Your Credit Profile: In the months preceding your home purchase, avoid changes to your credit obligations particularly between your pre-approval and the closing of your mortgage. This includes opening or closing any credit cards, keeping balances on credit cards within normal ranges so as not to affect your debt to income ratio which is a key factor used in determining mortgage rates.
• Get Prepared:  Pull together required financial documentation including pay stubs, bank statements for checking, savings and investment accounts, W-2 forms for previous two years, cancelled rent checks and/or any mortgage statements or property tax statements for any other property you own.
• Don’t Move Funds:  In the months prior to your home purchase, do not transfer money from a savings account into a certificate of deposit. Also do not cash in investments from stocks, retirement accounts or CD’s. This could create an issue to explain to the lender where the money originated.

 Since interest rates will likely to continue to gradually rise through 2016, prospective buyers who are interested but unsure whether they are qualified should meet with a professional Realtor to review their options.

 If you are not currently working with a Realtor and have an interest in either buying or selling a property in South Florida, please  don’t hesitate to contact me directly at (954) 547-9483 or at jaykenney@SFPropertyTeam.com.

South Florida Residential Team

• 954-547-9483

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