July 8, 2015

On a Wing and a Prayer

I started my career working for a local builder in 1995.  It was an awesome learning experience about the real estate industry...and it was my first REAL learning experience about people.  I learned that many people in the world are...um...wacko.

One person in particular sticks out to me.  She came to work with us as a sales consultant, and she had a direct line to God.  Now don't get me wrong.  I am a spiritual person, and I respect everyone's right to their own beliefs.  But this.  This was downright crazy.

She prayed for crazy things with people that visited her model home.  Oh, you want Lot 211?  Let's pray that it's available.  Don't know if you should put ceramic in the kitchen?  Ask Him.  Should you upgrade the carpet pad?  God says yes.

It really got to me when she started convincing people that their credit score would increase or their loan would be approved after she made a quick request to the Man Upstairs.  People really believed her.  I don't know about you, but my God has bigger fish to fry than whether or not my credit score jumps up thirty points today.

In those days, little more than a pulse was needed to obtain a loan.  Now, however, the mortgage industry has much stricter guidelines.  Everyone, and I do mean everyone, has to jump through some hoops to get a mortgage.

Freddie and Fannie have put new rules in place to eliminate risky loans in an effort to protect buyers.  Don't be scared by it - just be prepared for it.  Here's what you need to know:

Work on improving your credit score.  Under 620?  No go.  Over 740?  You'll get the best rates available.
Save your money.  You'll need a normal down payment this time around.  3.5% on an FHA, 5% on a conventional, 20% on a jumbo (in Indiana, $417k and above).  Sure, there are a few (very few) exceptions, but the vast majority of us will have to put down what is required.
Be realistic in how much you can afford.  Debt-to-income ratios are much more restrictive.  On a conventional, 45% of your gross income is the max that can go towards debt.  Not 46%.  Not 47%.  Just 45%.
Claim enough income.  For those that are self-employed, the incomes on your past two years' returns are set in stone and a lender will take the average.  Period.  No funky stuff.  
Play by the rules.  No more interest-only.  No more negative amortization.  No more stated-income.  No more no-doc loans.  No more 40 year loans.

Exceptions to the rules above:  There are some private banks and lending institutions that will and can make their own rules.  Please do your due diligence first to make sure they are reputable.

The good news in all of this is the interest rates are still crazy-low.  They can't stay this low forever.  Buy a home now, and with the extra money you save in interest, upgrade the carpet pad.


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