I've been actively involved in residential home financing for over 16 years. During that time we've all seen economic upturn, downturn and even stagnation cycles more than once. These days, I find very qualified borrowers hesitant as they've heard that financing is much more difficult that it was previously. While the government has stepped in with measures it feels will protect the consumer (subject for another blog), it's still in fact easier to obtain financing than when I started in this business in 1996.
All banks use the same criteria when qualifying people for home financing. There are four specific areas they look at. Income, assets, credit, and the property. Using these criteria, they come up with loan to value and debt to income figures. Loan to value (LTV as it's commonly known) is simple. Just take the amount of the loan and divide it by the value of the property. Despite reports, home financing programs with loan to value ratios of up to 96.5% are readily available. Debt to income? Known to orginators as DTI, is simple as well. Calculate your proposed monthly payment, and any monthly debts (car payments, minimum credit card debt, loans etc) and divide that by your income. A qualifying DTI is usually less than 45% these days.
My advice for consumers concerned about their home finance borrowing ability is first, find a home finance representative you feel comfortable dealing with. Then, come up with a plan that will leave you in the drivers seat as far as having a payment that's within your means, spending only monies you can afford. Example: You're paying $800 per month rent but feel you can afford a $1500 housing payment. Are you saving $700 per month? If not, chances are you will struggle with your new payment.
Next blog we will break down the four specific areas that bank underwriters look at to approve home financing. Feel free to contact me directly with any questions or concerns regarding the home financing process.
Marc Seligman
