If you’re considering buying a house, the cards might be in your favor right now.
That’s because the restrictions on home loans that were put in place after the Great Recession are slowly starting to be loosened.
That means that prospective homebuyers – first-timers and otherwise – have an easier avenue to home ownership today than even just a year or two ago.
One factor that makes it a great time to buy is the fact that home loans are easier to get. That’s due in part to two things: first, the credit score required to get a home loan has dropped slightly, and second, there’s been a slight increase in the allowed debt-to-income ratio for some home loan programs.
Though many people mistakenly believe that a good credit score of 700 or more is required to qualify for a home loan, that just isn’t the case. Minimum guidelines point to a score of 620 for many home loan programs. Even better, prospective borrowers that have an even lower credit score might still qualify if other factors, like having a very low debt-to-income ratio or a significant down payment, work in their favor.
Regarding the debt-to-income ratio, Fannie Mae and Freddie Mac have increased the acceptable ratio from 45 percent to 50 percent. That means more people with more debt can qualify for some home loan programs.
Another factor that makes now a great time to buy is that there are so many loan options available. In fact, there are even home loan programs that require very little down, and in some cases, no money down. That means you don’t have to rent for years and years while you save for a down payment because you might not even need one, depending on the loan program for which you qualify.
FHA loans, for example, are ideal for first-time homebuyers because they require just 3.5 percent down. Programs specifically for first-time homebuyers in Wyoming, like the First-Time Homebuyer Program through the Wyoming Community Development Authority, are a great option for families in our area as well.
Interest rates are on the rise, too, which makes buying sooner rather than later financially advantageous for buyers. According to Bankrate, the average rate for a 30-year fixed mortgage as of February 2018 was 4.57 percent. The average rate is expected to hit 4.8 percent by year’s end. And while that’s not a huge difference, every percentage point the rate increases means less money in your pocket at the end of the month.
Yet another positive trend for people looking for a home to buy is the fact that some lenders have revised the guidelines for how they factor student loan debt into a borrower’s profile. In the past, most lenders used one percent of the total student loan balance to derive a monthly payment for calculating the debt-to-income ratio.
However, some lenders now use the actual student loan payment that’s required, even if it’s part of an income-based student loan payment program. That could mean the difference of hundreds of dollars per month that some lenders no longer need to count towards a borrower’s debt-to-income ratio.
Still, not all people that want to buy a home will qualify, even with the loosened regulations outlined above. Bad credit, bankruptcies or liens, foreclosures, a high debt-to-income ratio (above 30 percent), or a low income or recent job loss are all factors that will work against you when looking for a home loan.
However, despite some black marks on your credit history, you might still qualify for a home loan. It’s important to work with a lender to determine if you qualify, and the amount for which you qualify.
Before you talk to a lender, check your credit score and look for any errors. If you have a lot of debt, work to pay it down. It also helps to build up some savings, just to show lenders that you have the funds to cover mortgage payments should you lose your job or have other major expenses.
If you’re not sure how to get the process started, we’re here to help! We can recommend local lenders that you can work with to determine if you qualify for a home loan, and once you qualify, we can help you find a home that fits in your budget.