But there are many more hurdles to clear -- for buyers and lenders.
"It's not a lot more difficult than it was before. It's just more complex," said
To qualify for a loan, borrowers should prepare for a far more rigorous application process than ever before. They'll be required to provide greater detail about their incomes, debts, sources of funds and job status, among other information, say some lenders and real estate agents.
"A lot of people work from old information," said
- In the past, a borrower might have gotten by with providing a lender with a pay stub and W-2 as proof of income, said
"We actually get a transcript from the
"It becomes a little bit more of a documentation issue. We validate the information a little more severely. We used to just be able to take that W-2 at face value and take your tax return at face value."
"You can still qualify," she added. "It's just you may have to provide more paperwork than you did the last time you did it. I'll need your bank statement. And I'll need the prior month's bank statement. And I'll need your tax return. And I'm going to get a copy from the
- Lenders must document sources of funds that a borrower might use in buying the home, Glasser said. A borrower who received a
Even if the money isn't being used in the mortgage transaction, the lender still might have to determine the source of funds deposited into a checking or savings account if they represent a certain percentage of total deposits and income, Glasser said.
"Primarily, the most difficult part of getting a mortgage today is the documentation in many respects, because we just document people to death," Glasser said. "That's the result of so many loans foreclosing and defaulting. When people went in for quality control afterward, and analyzed the loans, they found certain things hadn't been thoroughly documented. So now, we're having to document a lot more."
- Previously, borrowers might have rented out their current home and used those payments as an income source to qualify for a mortgage and move up to another home. To do so, borrowers might have presented a lease to a lender showing they're due a monthly rental payment, and lenders accepted the lease as proof of income.
Now, borrowers must demonstrate from past tax returns that they've been a landlord with steady rental income or, if they're a new landlord, show rental income for a year, Leonard said.
"You see this pretty frequently with people," Leonard said. "They'll find the home of their dreams, or maybe they're moving, and they can't sell (their current home) and they say 'I'll just rent it and then I'll buy.' Suddenly they have the debt load of both of those properties, so they need to show that rental income. And they can't unless they have it for a period of time."
- Past homebuyers didn't necessarily have to worry about their debt-to-income ratios -- how much they owed each month on their mortgage, car loans, credit cards and the like and how that compared with their income. In January, however, new rules took effect -- "qualified mortgage" and "ability to repay" standards designed to protect consumers and reduce the chances they will fall into financial trouble on their mortgages.
To qualify for a mortgage, buyers who are purchasing a home as their primary residence can't have debt that exceeds 43 percent of their monthly income, unless the government guarantees the loan, she said. In the past, there were no hard-and-fast limits on debt-to-income ratio, she said.
At the same time, lenders also must examine borrowers' potential likelihood of payment based on their job status, looming retirement and the like. Will a borrower who's changing jobs have the same income in the future? Will a retiree's post-employment income be enough to make a monthly mortgage payment?
The rules apply even to the rich and famous.
Peoples had a
Still, at the time the athlete was looking for a loan, Peoples would have needed proof of his new contract before it could provide him with a mortgage, she said.
"He didn't have a job," Leonard said. "Now, most people think, 'Well, he probably is going to have a job.' And the expectation was that he was going to have a job. But because he didn't have a contract at that time, he technically would not qualify for that loan.
"Even professional (athletes) who earn a high income, if they don't have a contract saying 'I'm going to get this income for the next three years,' I can't do the loan."
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- Do your homework: Before beginning the search for a home, sit down with a knowledgeable and experienced mortgage professional or lending institution. Have your credit report pulled, analyze how much debt you have and determine what kind of mortgage you're qualified to get.
- Get your finances in order; they'll be scrutinized closely: Having a huge debt load -- car loans, student loans, credit cards and the like -- could be a stumbling block to obtaining a mortgage. Having money in savings will help you qualify. At the same time, if you have a decent monthly household income, yet little or no money in savings, you'll raise a red flag when it comes to your ability to pay off a loan.
- Look for financial help: Having a down payment is key to buying a home.
- Rates remain affordable: Long-term, fixed-rate mortgages have risen in the past year yet remain historically low. Thirty-year, fixed-rate mortgages averaged 4.14 percent nationally in late May.
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