Home Loan: Is there any easier way?
Loans just are not the same as they were two years ago
Unfortunately today the turn in the housing market has made it much more difficult to get a home loan. As of even 18 months ago, potential buyers, and home owners looking to refinance, had many options to choose from when considering what type of home loan they wanted and on what terms they could be approved.
Choices included stated income, full documentation, blankets, single loans with mortgage insurance and combinations of a traditional mortgage stacked with a second. Additionally, there were all kinds of programs and rates to choose from such as 30-year fixed, Adjustable Rate Mortgages, and Interest Only. The idea behind all these different products and various programs was to find a loan that met the needs and constraints of the consumer. Ideally, a self-employed borrower who could show a solid cash flow, but perhaps not a great deal of reported income, could qualify for a mortgage providing they were able to demonstrate the ability to pay via their credit. Today this is not the case. Today borrowers must show an income via tax returns or paystubs, along with solid credit and the ability to make payments through Debt to Income Ratios.
Do I spend more than I make?
The most important qualifier is the Debt to Income Ratio or DTI. DTI should be around 40 to 45% depending on the lender. This means that if a person makes $10,000 per month; when their credit is pulled, the reported debt should only ad up to $4,500 per month. This includes their future mortgage payment. As you can imagine this severely limits the amount of the total mortgage one can get as compared to years past.
What else can go wrong?
If that were not enough, the underlying issues within the mortgage marketplace create a log jam when it comes to getting a home loan. The basics of a mortgage consist of a Broker who works with Investors. The Investor is the Lender who ultimately funds and services the loan. In between the Broker and Investor is the Warehouse bank. The Warehouse bank funds the loan for an interim period between the broker closing the loan, (signing the documents), and the Investor purchasing the loan from the broker.
This is usually about a seven day period. Where it gets tricky is that each party has their own standards in place, and they do not always work together. For example an Investor may require a credit score of 620 to fund a loan, but the warehouse line requires 660. If the borrower has a 640 score, the loan can be approved, but impossible to actually fund, because the warehouse line won’t release the funds for the interim period. Ad in Mortgage insurance and you will have a whole new set of standards that could prohibit the funding of a loan.