As a first-time homebuyer, here are the answers to some questions you may have regarding mortgages and what you need to obtain one, courtesy of Andy Deutschle of Concord Mortgage.
What do first-time homebuyers need in order to obtain a mortgage?
According to Andy, lenders try to match the mortgage with the individual, so there are three things they’ll look at to determine what you qualify for:
- Your credit. With this factor, they’ll determine what your credit score is and what your debt looks like.
- Your income. Here they’ll calculate your debt-to-income ratio and your income stability in terms of your ability to repay the debt.
- The down payment. With this, they’ll see if you have the adequate down payment you need or if you need a down payment assistance program or a first-time homebuyer program to help you.
What type of credit would a first-time homebuyer need to qualify for a loan?
The minimum credit score you need to qualify for a loan is 585, but each person is different, and not all 585 scores are treated the same. As a first-time homebuyer, you’re looking at a minimum credit score of 640. If you need a down payment assistance program, your minimum score might need to be higher.
“With certain loans, it’s possible to buy a home with zero money out of pocket.”
What is a debt-to-income ratio and what kind of percentage do you need to qualify?
Your debt-to-income ratio is the number of monthly credit obligations divided by your monthly income. Two or three years ago, standard underwriting guidelines would’ve said you needed a debt-to-income ratio of 31% to 43%. Now those ratios have expired quite dramatically. So if a buyer has compensating factors, such as savings, a pattern of savings, and/or excellent credit history, then their debt-to-income ratio might be expanded. With an FHA loan, for example, you could still qualify with a 55% debt-to-income ratio.
Can you still obtain a loan with minimal savings?
Absolutely. If you’re doing an FHA or a conventional loan, your down payment can be as low as 3% to 3.5%. If you’re doing a VA loan or a USDA loan, you can buy with 0% down. If you need assistance, the state of Ohio has a down payment assistance program for first-timers called Ohio Housing Finance Agency. This program can provide you with the necessary down payment you need. In effect, it’s possible to buy with zero money out of pocket with the right circumstances. Other assistance programs include the American Dream Down Payment Initiative, which is administered by the state of Ohio, and the Franklin County Program, which is administered by the Columbus Housing Partnership.
What kind of documentation do you need to start the mortgage process?
The documentation is different for each program, but you’ll typically need two years’ worth of tax returns, employment pay stubs from the last 30 days, and two months’ worth of bank statements. There are new initiatives in place that can reduce that paperwork even further, so your lender can forgo all of that documentation in certain circumstances
If you have any more mortgage questions for Andy, you can give him a call at (614) 212-6951 or send him an email to andy.deutschle@concordmg.com.
If you have any questions for me or you’re thinking of buying or selling a house soon, don’t hesitate to give me a call or shoot me an email. I’d be glad to help you.
