What Does It Really Take To Qualify For a Loan These Days?
There's been a lot of talk about mortgage finance reform in Washington. Eventual outcomes are unknown, but could include: larger down payments, shorter loan terms, higher credit hurdles, tighter debt-to-income ratios or the demise of the annual mortgage interest deduction. We do know that uncertainty can create indecision and indecision can cause paralysis. Since it could take years to sort out the future of Fannie Mae and Freddie Mac, finalize new requirements and implement reform, let's talk about what we know right now:
Twenty years ago our industry relied on manual underwriting. An underwriter scrutinized documentation to confirm every detail with a strict adherence to debt-to-income ratios to ensure the mortgage payment wouldn't exceed 28% of monthly gross income, and that total debt (e.g., school loans + car loans + house payment) wouldn't exceed 36%. Every late payment or blemish on a credit report needed to be explained in writing. Funds for the down payment were closely reviewed to make sure the money came from an acceptable source.
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