Though a number of states are still experiencing high rates of mortgage delinquencies, the housing market overall continues to be strengthened by an increase in new mortgage apps, as well as refinancings. As reported by Forbes, the Mortgage Bankers Association announced yesterday that, for the week ending February 1 from the previous week:
- the refinance index increased by 15%
- total mortgage applications filed increased by 16%
As I blogged last month, lenders are especially discriminating these days in the wake of the recession fueled by the housing crisis. So if you are among those in the market for a new mortgage, or a mortgage refinancing, take stock of your current credit and financial health before proceeding and make improvements accordingly.
1) “A” credit:
- You have not been late on a mortgage or rent payment in the last two years.
- You have not been late on a car payment in the last two years.
- You have not been more than 30 days late on a credit card payment more than twice in the last two years.
- You have had no collections (other than a small medical collection) or any judgments in the last two years.
- Your credit score is good to excellent, perhaps 680 or better. (Note average competing credit scores.)
- You have at least two months mortgage payments in “liquid reserves”. This can be in a checking, savings, investment, or even retirement accounts at any financial institution.
2) Sufficient income:
- Your total mortgage payments per month are equal to 29% or less of your gross monthly income (your pay before taxes are taken out).
- Your total payments per month (not including insurance, utilities, food) are equal to or less than 36-41% of your gross monthly income.
- You must be able to prove your income. Examples: tax returns, bank statements, pay stubs.
- You must have been employed in the same line for work for the last two years (in order to count full income).
3) Good stability:
- You have been in the same line of work and/or job for 2 or more years.
- You have lived in the same house or apartment for more than 2 years.
4) A down payment:
Typically you need to have saved up an amount equal to 3.5% of the price of the home (at the minimum — and this is for an FHA loan) to qualify.
Taking the time and care to improve your standing in each of these four areas should go a long way toward improving your chances at qualifying for a mortgage, and at the best rates.