Best Places to Live 2010: How to Get a Mortgage (Now)
At the height of the market, if you could fog a mirror you could get a mortgage. Not anymore. While the process is not quite as invasive as a Logan Airport body scan, the rules are pretty stringent. Here, some simple advice for navigating the new reality.
Get your credit report
And scan it for errors. Most credit reports contain mistakes, says Bill Connolly, a certified mortgage-planning specialist. If your score is lower than 640, you’ll likely have difficulty qualifying for a conventional mortgage. Couples, banks will use the lower of your two credit scores. You’ll get the best interest rates at 680 or higher.
Ballpark Your Expenses
An online mortgage calculator (mortgagecalculator.org) will help you gauge what you can afford, but be aware that taxes, home insurance, and mortgage insurance (if you put less than 20 percent down) can add hundreds to your monthly nut, says Jaclynn Sulfaro, president of the Massachusetts Mortgage Association. Rule of thumb: Housing costs should not eat up more than 35 percent of your gross income.
This shows both Realtors and sellers that you’re serious. It may also help you snag a house in a bidding war. In addition to your credit report, you’ll need to provide a bank or mortgage broker with a copy of your driver’s license, your past two years’ W-2’s, your most recent pay stub, and statements from all cash assets (checking and savings accounts, mutual funds, IRAs, 401(k), stocks, etc.).
Save for a Down Payment
Yeah, it’s one whopping check, as in about 5 percent of the purchase price for a single-family home and 10 percent for a condo, which lenders deem riskier, says Sulfaro. That translates to more than $15,000 for a median-price home in Greater Boston.
Consider Alternate Lenders
Federal Housing Administration loans, which are backed by the government, require only 3.5 percent down and allow you to use a cosigner (such as a parent) to help you qualify. The FHA will also lend to people with less-than-stellar credit scores, sometimes down to 580, but you are required to live in the property, not be purchasing it as an investment. There’s also MassHousing, which brokers 30-year fixed mortgages to modest-income buyers with good credit, and with little or no money down (for guidelines, go to masshousing.com).