Have you noticed lately that every conversation, no matter who or where you are, eventually lands on the subject of our tough economic times?
This morning, on "Meet The Press", Lawrence Summers, the head of Obama's National Economic Council, referred to what's going on as "the worst financial crisis since World War Two." Not an optimist in the short term, he said,"It's going to worse before it gets better." (Oh boy!) But, he also insisted things were going to get better. (Don't know when or how, but they will, he implied. What would you expect him to say?)
Truth be told, these are unprecedented times and if you're thinking about buying a home (and don't have the resources to buy it with cash) here are some things you should know about the state of mortgages in 2009.
- 100% financing? Not going to happen UNLESS you're a qualified US military veteran.
- "80/20" loans, where you take 2 loans to get 100% financing? Not available anymore. Gone.
- Stated Income and stated income/stated assets loans. Forget about it. Mortgage insiders always called NO DOC loans (where you just tell the Lender how much money you make and how much you have without having to provide documentation) 'liar loans'. You can look high and low for a loan like this, but you're not going to find one.
- Sub-prime loans. Dead and gone. (See what bad press can get you.)
- Here's what it takes to get a mortgage today.
- You need some money. You have to have enough cash to make a down payment of at least 3% (more is better), pay closing costs (figure on 2- 3%), and have at least 3 months of mortgage payments in reserve. These assets can be in cash, bank accounts, savings, stocks & bonds, brokerage accounts, IRA, 401Ks, etc. You can use a gift from family to cover much of the funds needed up front, but you still need to have saved some money somewhere. You'll need to have paperwork to prove it, too.
- You need a job. Or some form of income, enough to cover the mortgage payment and your other debts. You also need to have been in your job, or at least the same industry, for at least 2 years. There are some ways to get around this, but not many and it is not easy. Bring paycheck stubs or tax returns.
- You need decent credit. Good credit is even better. And great credit goes a long way. Obviously, the higher the score the better. The lower your score, the higher the interest rate you will get. If the best rate is 5.00%, a low score may require that you pay 5.50% or so.(These numbers are examples only. Check with your local lender (s).)
- You cannot have a lot of other debt. Mortgage Lenders look at something called a 'debt-to-income ratio', which is the percentage of your gross monthly income (income before any deductions) that goes toward long-term debt (mortgages, car and other consumer loans, student loans, and the minimum required credit card payments).
- You cannot have a recent bankruptcy and/or judgment on your credit report. It needs to be at least two (2) years since a bankruptcy was released, and you will need to have paid off or otherwise taken care of any judgment or liens against you.
- You need to be reasonable. Common sense should prevail. Just because you love that 3700 square foot house, and some disreputable mortgage person (we don't know anyone like this) convinces you that he/she can get you a loan for it, that doesn't mean you should do it. This is one of the biggest reasons we have the financial problems we have today - many peoples' eyes were bigger than their wallets. So, be reasonable and look for a house you can afford.
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