So what are lenders using as criteria today for mortgage qualification?

February 6th, 2010

I’ve been talking about some things related to the home purchase we’re doing now.  One of the conditions of purchasing our new home was ability to get financing.  Since I couldn’t buy with cash, I needed to apply for a mortgage.  What I couldn’t do was make the purchase contingent on the sale of my current home (the property we were interested in was a foreclosure), so I needed to be able to qualify for the new loan without settling my current mortgage.

This seemed to be a bit harder of a condition to meet since it would mean carrying a higher debt load.  I was a little concerned that I wouldn’t qualify, especially now that lenders weren’t writing loans for anyone who happened to have a pulse anymore.

Back before I knew what I could qualify for, I asked around over at Cash Commons to see what kind of mortgage qualification criteria lenders were using to determine a maximum loan amount.  Reduce Debt Faster gave an insightful answer which included things like:

  • Housing expense ratio (ratio of principal, interest, taxes, and insurance to monthly gross income)
  • Debt to income ratio (ratio of total debt service to monthly gross income)
  • Credit score (now they’re looking for 750-ish for prime rates)
  • Income level (the higher, the better)
  • Job stability (the more, the better)
  • Down payment (the more, the better)
  • Loan-to-value ratio (the smaller, the better)

After I applied and got my pre-qualification letter, my jaw dropped at how much they approved me for. Now, I did have a great credit score (even better than FCN’s before it dropped) and the only debt I carried was my current mortgage.  The credit union used the 40% debt to income ratio to determine what they could lend me.  But what got me was that the 40% was based on gross income, not net income.  This would have allowed us to purchase nearly twice the house we were interested in.  If I was worried about qualifying, those worries were blown out of the water.

My take on it is that if you’re the right candidate for a loan then they’ll let you borrow up to your eyeballs — even today.  That doesn’t mean you have to, of course, and you shouldn’t.  Banks are happy to lend you as much as they can if they have excellent assurance that they’ll get paid back.  They’re not nearly as interested in what you have to do in the rest of your budget to make those payments back to them.  You’ll give up a lot of things before you give up your house.

So, it may be tougher to qualify for a mortgage today than it was a few years ago, but it is possible.

Posted in Banking, Real Estate | 1 Comment »


Friday Fiscals: Blizzard Edition

February 6th, 2010

We’re in one of the areas that’s getting pummeled with snow this weekend.  Thankfully we still have power, and even Internet access.  Please be safe if you’re in the mess with us.

Here are some links of interest from the past week:

Take care all!

Posted in Roundups | 1 Comment »


If your bank legitimately calls you, call them back

February 5th, 2010

I initiated a wire transfer today from an out-of-state credit union to my home credit union.  Because the amount of money was fairly significant, they called me up to verify a few things before they did the transfer.

After the woman gave her name and who she worked for, she asked for the passcode to my account to continue the transaction.

I almost told her, but stopped.  Since she called me, I asked, “Uhhh, can I call you back please?  I want to verify who I’m speaking with.”  She agreed without any problem, and gave me her name again, her phone number, and her extension.  I hung up, looked up the number on the credit union’s website, saw that it matched what she gave me, called her back, and finished the transaction.

Initially it surprised me that the credit union could conduct business over the phone in a way that wouldn’t even be remotely acceptable through e-mail.  (If you know when they can do this, let me know!) She started off by talking about my wire transfer, but aside from knowing her personally — I didn’t — how was I to know otherwise that she worked for who she said she worked for?  People who can spot a phishing e-mail a mile away might get taken in by a plausible-sounding phone call.

Here are a few steps to take if this kind of thing should happen to you:

  • Don’t give your account information over the phone if you didn’t place the call. Again, you can’t verify the identity of someone who calls you the same way that they can verify who you are.
  • Ask to call them back. They shouldn’t argue with you.  If they do, that’s a red flag.
  • Ask to get some of their information. Like phone number, extension, name, etc.  They should understand.  If they don’t, that may be a red flag.
  • Verify the information they give you. Don’t just call back the number they give you.  A scammer will just have you call him/her back.  If it’s a place you normally do business with, they should have a website with their phone number on it.
  • When you call back, make sure everything matches up. For example, I got the direct extension from the person who called me, and it was indeed correct.  It should be.

Forewarned is forearmed!  Banks and credit unions verify their customers thoroughly before conducting business.  Don’t be shy about verifying them.

Posted in Banking | 3 Comments »

Why yes, I DID save some money on my auto insurance!

February 4th, 2010

We’re (hopefully) in the final stretch for purchasing a new house, and part of the paperwork for this was setting up homeowner’s insurance for the new house.

We called the same company that sold us our current house’s homeowner’s policy, as well as our current auto insurance policy.  The agent was able to get us quite a good deal on the homeowner’s policy, and almost as an afterthought, she offered to check around for us on our auto insurance policy.

For several years we didn’t have the best driving record.  Right before I was married (2001), I had a speeding ticket and a fairly serious at-fault accident on my record.  I called my (then) auto insurance carrier about a week before my policy was set to expire and asked why I hadn’t received the renewal notice.  Well, they weren’t going to renew my policy.  (Gee, thanks for letting me know, turds!)  So I scrambled with only a week left before my insurance lapsed, and found a (higher-risk) carrier to sell me a policy.

I haven’t had any more driving mishaps.  In the meantime, though, my wife has had a couple of (not nearly as serious) accidents.  One of them was a 2 MPH collision with a parked car.  But my marks, and her marks, kept points on our policy until last year.

Back to this past week … The insurance agent looked at our current policy and made the comment that “we’ve probably done our time with X” and can get into a better auto insurance policy.  (I’m not saying who “X” is because we were otherwise quite happy with them, and I don’t want to appear ungrateful.  I may have said who “X” is before in another post, so if you want to look, you’re welcome to.)  She ended up finding us an insurance policy that gave us the same coverage for about 15% less than the other carrier.

So if you’ve gotten yourself into second-tier (or lower) auto insurance because of your driving record, and have since gotten better, make it a point to shop around a bit. My wife and I were so happy to see that all of the points were off of our policy, we just saw the relative decrease in our premiums, and didn’t look any further.  We didn’t think of looking outside of our current policy.  But just like I had a good policy before I screwed up, I can get a good one again, and so can my wife.  The good policies are likely better deals than the second-tier ones, even with a clean driving record.

Posted in Insurance | 1 Comment »

« Previous Entries
Next Entries »