The basics of mortgage financing for each type of mortgage financing as it relates to credit, income and assets follows. We have included helpful tips that will help home buyers in situations that are unique and do not follow cookie cutter conventional financing.
Currently, the lowest credit score is 620 if no mortgage insurance is needed. And, 640 if mortgage insurance is required. Loan officers cannot manually underwrite conventional loans. They must have an Approve/Eligible in the automated underwriting system.
Unlike Federal Housing Authority (FHA) loan – Conventional loans carry risk based pricing adjustments so the lower the credit score the higher the rate and mortgage insurance rate. Typically, a buyer with low credit scores will be much better served using FHA financing because the rate and Mortgage Insurance (MI) will cost less for them.
The maximum debt to income ratio is typically 45%. However, a Loan Prospector with good compensating factors will sometimes go up to 50%. A non-occupant co-signor can be added for income purposes. The buyer does not have to qualify on their own. In the past- it used to be that the buyer had to qualify on their own before a non-occupant co-signor could be added but this has changed recently.
Mortgage lenders typically like to see buyers on their job for at least two years, but if there are frequent job changes this is acceptable as long as it in line with current occupation. An applicant can also substitute a school history for the 2 year employment history. Self employed buyers must have a two year history, but lenders can use ONE year of tax returns to calculate their income.
A first time home buyer can put as little as 3% down. Gift funds can also be used for the down payment. And, second time home buyers need to put 5% down and gift funds can also be used for the down payment. The lender will collect one month of bank statements instead of two months unless the buyer is using a down payment program, e.g the Maryland Mortgage Program (www.mmprogram). Other down payment programs can be used with conventional financing, but there are CLTV restrictions that have to be followed. Special Note – Using The Maryland Mortgage Program will give the buyer a discounted mortgage insurance rate that will almost cut their mortgage insurance in half.