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With rates the lowest they've been in 40 years, many people are refinancing their mortgages to reduce their monthly payments. Many young families are buying their first home and taking advantage of low house prices and great mortgage rates.
How has the application process changed?
The process itself is essentially the same. It is the greater scrutiny of the data you provide that is different.
Getting a mortgage is pretty straightforward if you have 25 percent of the purchase price of a new home as a down payment as well as a steady job with a good work history and good credit.
In the past, a pay stub and two years of tax returns were generally acceptable to verify income.
Today you also need a letter from your employer verifying employment history, and if you have partnerships or investments contributing to your income you will need to produce partnership tax returns and copies of bank statements. In short, lenders are drilling down a whole lot deeper then they have historically. Obviously this adds time to the entire approval process.
The generally accepted requirements to qualify for a mortgage are a ratio of 28 percent of gross monthly income to cover principal and interest on the mortgage, plus property taxes and insurance (PITI) and a 36 percent ratio to cover PITI plus any other debt.
With rates at historic lows people are finding they are qualified to borrow significantly more dollars then they might have been in the past. Keep in mind that mortgages in excess of certain sizes, typically over $1 million, often require multiple appraisals.
While loans for borrowers who have less than 20 percent to put down are available, there are fewer lending sources. The smaller the down payment, the higher the interest rate on a loan.
Finally, be prepared to wait longer for the final approval on a loan. We used to say 30 days for a financing contingency. Today that is a minimum. Refinances can take longer as there typically is not the urgency required for a new purchase. Keep in mind as you drop below a 20 percent down payment that you are adding weeks to the approval process.
The reality is that the pendulum has swung from excessively lenient practices to a more draconian approach. There are plenty of good sources in our market for financing and appraisal services. It just requires patience to find them. You must also have reasonable expectations and a good "Home Team" behind you.
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