According to The Guardian, a recent report from the IRS noted that most Americans have not recovered from the Great Recession. With less income and subpar credit scores, many people are unable to purchase a home or qualify for a mortgage.
In a recent episode of “Your Future, Your Finances,” I sat down with the vice president of Equity Mortgage, Ken Venick, an industry professional since 1987. He helps people restructure debts with mortgages and obtain mortgage qualifications. During our conversation, Mr. Venick said “bad news is good news” when it comes to interest rates. Rates go down during a negative situation, such as a bad job market, and rates go up in reaction to good economic news.
Mr. Venick said mortgage seekers should keep the following factors in mind:
- Mortgage rates are currently at historic lows.
- Weak economies around the world bring rates down.
- International emergencies and the interest rates of other nations could impact rates.
While outside circumstances could dictate the best time to obtain a mortgage, individuals must fix their own financial affairs, especially their credit score, before they apply for a mortgage.
Venick emphasized the need to repair damaged credit, but the good news is that doing so is not a long process. First, consumers should go to AnnualCreditReport.com, a site that provides users witha free credit check each year. A low credit score can be improved by paying down loan balances, especially credit card balances. Keeping credit card account balance at 50 percent below the credit limit reduces your debt-to-income ratio, which is something that mortgage companies consider when assessing an applicant. It’s also important to remember that no credit history is better than a bad credit history.
First-Time Home Buyers
It can be difficult for a first-time home buyer to get a traditional mortgage, but there are alternative paths to consider. One option is a Federal Housing Administration (FHA) loan, which comes with lucrative terms, such as a 3.5 percent down payment instead of a standard 20 percent down payment requirement. Moreover, FHA loans are cheaper to obtain due to lower mortgage insurance premiums, among other factors.
Compiling the necessary documentation can be burdensome, but Mr. Venick highlighted a few key things that mortgage applicants need:
- Proof of income in the form of W-2s or bank statements and proof of assets
- A list of liabilities that include credit card debt or debt-to-income ratio
- Additional documentation tracing large cash deposits
Large cash deposits are typically red flags to underwriters, who will want to trace the origin of each deposit. Additionally, mortgage companies usually verify debts and employment twice: Once before the loan is approved and shortly before the sale of the home closes. Many mortgage applicants make the mistake of incurring large debts such as a car or a boat, which can throw off the debt ratio and jeopardize the mortgage deal.
A professional consultant can help people from all walks of life attain their homeownership dreams. To find out more, check out parts 1 and 2 of my interview with Ken Venick: