The question I get most often lately is: Do I or can I qualify, as a first-time buyer, or qualify again after a short sale or foreclosure for a home loan? The average person truly is getting so many different messages from so many different “experts” that they do not know who or what they can trust anymore.
Some lenders have capped their back-end ratios, which is total income divided by total credit report monthly debt, at 43 percent and they have capped the amount of points and fees charged on a loan so it does not exceed 3 percent of the mortgage value. When they do the above, they have what is called a “QM” qualified mortgage, which is a safer loan.
But other lenders will allow higher ratios. Some lenders do not let VA buyers purchase again after a foreclosure for four years, while others will allow it after only two years.
Wait! Someone said: “After only one year I could come back in and purchase again?” Well yes, if you can completely document a 20 percent or greater loss in income for a minimum of six months preceding your foreclosure or short sale date, and you have re-established perfect credit since the date of your foreclosure for a minimum of 12 months, and you have taken a HUD-approved class, then you quite possibly can.
Some lenders will do FHA loans down to a 640 FICO credit score only, others down to 600 or even 580 scores. If you have a 583 score, will you automatically qualify to purchase a home? Not if you have current late payments and are not being financially responsible. If you had a traumatic medical event and are 12 months past it and your 585 score is attributed to that specific event, can you purchase? Very possibly.
There is no specific, absolute answer. It all depends on the circumstances and how well-packaged and complete your application is when it is delivered to an underwriter.
Some of these restrictions are called “overlays.” They are put in place to make a lender’s portfolio of loans more enticing or saleable on the open market. They might get an investor to pay a premium for not getting any loans under a 640 score. They would also gain a premium by making a block of loans a bit higher quality by requesting a rate of return of 4.25 percent paying for 30 years and are secured by 10 percent or more down payment.
Above is only a taste of what kind of different “standards” there are in the mortgage industry in our new age of the Financial Reform Act or the Dodd-Frank Consumer Protection Act, and that is only on the conforming or FHA/VA side. The jumbo side has its very own quirks that are just as confusing. It is critical that you are getting good, solid information so you can determine whether or not you can actually purchase a home.
So when you are thinking about looking for a home, do not be discouraged until you have spoken to two or even three different lenders. You need to get to a lender who has the least amount of overlays, one who can structure a loan highlighting your positive attributes. Get to a mortgage officer who gives you good, solid, specific information on the questions you have.
You will immediately know who that is once you have spoken to two or three of them. Then it will become very obvious who will be able to answer the question, “Do I even qualify for a home loan?”
George R. Kalis has 20 years as a mortgage consultant. He works at FirstCal Mortgage, 1300 Oliver Road in Fairfield. Reach him at 759-5129 or [email protected]