With mortgage interest rates bouncing off all-time lows and house prices near recessionary levels, this is a great time to buy a house or condominium.
The National Association of Realtors’ Housing Affordability Index rose to its highest level ever in the first quarter of 2012. The index measures median home prices, median family incomes and average mortgage interest rates. The index rose to 205.9 in the first quarter, the first time the index was above 200. The index has been tracked since 1970.
NAR president Moe Veissi, broker-owner of Veissi & Associates Inc., in Miami, says market conditions are optimal for homebuyers: “For those with good credit, we’ve never seen better housing affordability conditions or market opportunities than we see at present.” He adds, “although home prices are stabilizing and sales are rising, some buyers still have to jump through a lot of hoops to convince a lender that they are creditworthy, even for a mortgage that would be well within their means. This is especially true for self-employed buyers.”
The comments by the NAR president explain why it is important for homebuyers to be pre-approved for a loan. There are a few basic reasons why a pre-approval makes sense. First, with a pre-approval, the prospective buyer will find out how much of a mortgage he or she can qualify for and afford. The old affordability ratios have changed. Credit requirements are more stringent and can affect interest rates. Documentation standards have changed, as well.
The old rule of thumb was individuals could qualify to purchase a home around three times their gross income. Now, the ratio is significantly higher. It takes a professional to look at actual income and liabilities to come up with that exact number.
Credit scores are important. If the scores are too low, the borrower may not qualify for a loan. If he or she does qualify for a loan, the rates may be adversely affected. If the credit is pulled early enough, these problems can be addressed. Sometimes, the borrower can be re-scored, and sometimes those scores can go up by 50 to 100 points.
Documentation standards are strict, and verge on the unreasonable side of rationality. Full income documentation is now standard. For self-employed folks who write off almost all their income, they have likely written-off their chance to buy a house at a price level that matches their true pre-deduction income. Bank statements that are being used for the house purchase should be devoid of most non-payroll deposits. Any non-payroll deposits will have to be documented. To minimize things, a borrower should use direct deposit of payroll checks avoid small miscellaneous deposits.
With a little preparation, one can better negotiate the home buying environment and take advantage of this great home-buying opportunity.
Bill Starrels lives in Georgetown and is a mortgage loan officer who specializes in refinance and purchase mortgages. He can be reached at 703-625-7355 or firstname.lastname@example.org