Debt To Income Ratios And Credit

want a new homeMany people we talk to who had credit problems – have gone to an all “Cash” economy – meaning they don’t use credit at all any longer.  We totally understand that theory, but we feel that the better program involves having SOME credit active.  And today, that generally means that you need some revolving credit. Trying to figure out how much debt should you carry in order to have the BEST credit score is the real question most folks have.

Well, obviously, you don’t want to have more than you can pay, but seriously, there are other things you should look at too – like what KIND of debt do you have?  Is it “Good Debt” or “Bad Debt?”  Do you meet the minimum credit scores required to buy a home in 2013?  With the changes by NCHFA this spring, most borrowers will need a 640 minimum credit score.

Good Debt is generally looked at as an Investment – a Car payment, a House Payment, that debt for items that should generally be considered an ASSET are in the Good Debt column.  BAD Debt traditionally has been seen as revolving credit card debt.  The items we should probably be paying CASH for.  However, the way the Credit Models currently work – we all need some credit card debt in order to get the very best scores. If you can’t get a credit card right now, look into a Secured Credit Card.  There’s generally a fee for the first year of having these cards, but it really is worth it.

How do you know if you have too much Debt to buy a house?  There’s a formula! To calculate your debt ratios (this is exactly what we do when we are looking at qualifying you for a mortgage) simply add up the amount you spend each month on debt and divide it by your total monthly income. Then, multiply that number by 100 – which will give you your Debt to Income Ratio. For example, let’s assume your gross income (before taxes) is $3,000 a month. Let’s also assume you spend $300 on credit card payments and $450 for your cars. Your ratio calculation would be $750 / $3,000 = 0.25.  Multiply that by 100 for a debt-income-ratio of 25%.

If you are trying to buy a house, the maximum TOTAL debt ratio will not be allowed above 50%, unless you are putting way more than 20% down on the house.  If you are getting a government loan (USDA Home Loan, VA Loan or FHA) we generally think the maximum the system will take is 42% – but if you have a really high credit score, we’ve seen USDA Home Loans accepted with a total debt ratio as high as 48% this year!

When it comes to debt, especially if you are trying to buy a house, the lower the debt you have, the better.  Again, assuming your gross monthly income is $3000, than at 40% as a total debt ratio the most your TOTAL payments (including your house payment) can be is $1200.  So, you deduct our $750 a month in debt from $1200… and you realize you would not be buying a very big house.

If you are considering a mortgage loan – please let Steve and Eleanor Thorne in Cary, NC – We’ll help you with qualifying!  919-649-5058

Minimum Credit Scores for Mortgages Spring 2013 Update

First Time Homebuyer Minimum Credit ScoresFor the past couple of years, when we talked to a borrower with a credit score of 580 to 600 – we told them they had a 3 to 4 month waiting period before they could buy a house.  In MOST cases, that was all the time we needed to help someone who was motivated, and who could really afford a home, to get their scores in order.

Minimum credit scores for the NC Housing First Time Homebuyer program was 600, and we could help people get into houses if they qualified for the program and had the scores.

On May 1, 2013 that changed.  It changed from a couple of perspectives… first the NC Housing program changed SIGNIFICANTLY. The changes include higher credit scores, more flexibility for homeownership status, and a better downpayment / closing costs assistance program.

Additionally, changes were made in April to the Automated Underwriting Systems for Fannie and Freddie – with those updates, Credit Score requirements for Governement loans went up to 640.  Can Underwriters override the “Automated” Approval systems?  Yes.  But Will They???  That takes a VERY well documented case. [Read more...]

4 Things U Can Do NOW!

cary mortgagesIs your credit picture lookin’ kinda bleak??

Relax – if we work together for the next 6 months – we can get you in a much better position!

No matter what your credit picture – 6 months of work will general improve your scores by 100 to 150 points.  Here are 4 things to do from the start:

  • Stop using your credit cards. You might need to take PB&J sandwiches to work everyday – you might not get new shoes for Easter – but you’ve got to break the habit of spending credit, and work on a cash basis for all purchases.  If you are an impulse spender, like me, there’s an easy trick.  Take your credit cards and put them in a plastic container.  Fill the container up with water.  Put it in the FREEZER.  Now – if you melt the ice in the microwave it’s going to mess up your little strip on the back… but if you NEED your credit cards for new tires (for instance) you can wait the two or three hours for them to thaw.  If you WANT a new dress for a date – you will be more likely to call a girlfriend an BORROW something! [Read more...]

Documenting Large Deposits for a Mortgage Loan

Large Deposits should be documentedMany times we have questions from underwriters about deposits showing on a bank statement.  Seems kinda silly at times… but they really do want to know where that extra $350 came from!  If you are buying a house, and you are having a yard sale to try and raise a little extra cash – this can be difficult to document!

If there are any unusual or extraordinary deposits into your account the deposit will need to be documented.  If they cannot be documented the funds will not be given credit in your transaction.  This could lead to a denial, because an underwriter suspects a cash advance on a credit card or the funds that are otherwise borrowed.

We have had delays for many different deposits over the years that are perfectly legitimate, we just  needed to prove it: money earned while keep a neighbor’s child on a one time basis, brother or sister paying off a loan made several years earlier, inheritance or gift funds, lottery winnings, sale of an asset like a fishing boat. [Read more...]

“TOWNS” in NC Due to Lose USDA RD Program

USDA Home Loans in NCCurrently, every County in NC is eligible for USDA Home Loan Financing.  The USDA RD Program (which covers home loans in Rural parts of NC) is subject to change on September 30th, 2013.  When it does, the program is slated to “leave” many major towns and cities in NC.  According to a memo from USDA in September of 2012, the actual town BOUNDARY lines may be the important guide.  Meaning that with the new requirements for a home loan, USDA will use NC Town Limits to determine USDA Home Loan Boundary Lines

Currently, a town might have a single street that sets the “eligible Boundary line,” the USDA Home Loan Map Changes taking effect, could make the Town or City Line the eligible marker.  

In Holly Springs, NC (for instance) one side of  SR 1010 is eligible – properties on the Other side of SR 1010 are not.  This is a definite policy switch, in announcing that the entire TOWN LIMITS would not be eligible for USDA Home Loans with the newest Map Changes.  Again with the new requirements for a USDA Home Loan, USDA will use NC Town Limits to determine USDA Home Loan Boundary Lines

The NC Town and City limit / boundary lines we currently believe will no longer be eligible for USDA Home Loans on September 30, 2013 include: [Read more...]

Do I Need Title Insurance On My NC Mortgage?

first_time_home_buyerFirst Time Homebuyers we talk to want to know what is included in Closing Costs.  Obviously there’s an appraisal fee, a credit report – you might want to have a Home Inspection… but we often get asked what Title Insurance is… and the next question is, “Do I Need It??”

Title Insurance:  This is a policy you get when you buy or refinance a home that guarantees that the home will have a “clear title” directly to you. It insures that the house “title” will not have any problems because a previous owner has an outstanding judgment.

Title insurance is one of those items Buyers often request that the Seller Cover in Seller paid closing costs [Read more...]

USDA Home Loan Income Limits Change in NC for 2013

house_for_sale_smithfieldIt’s February 7th – and the USDA Single Family Origination Division just notified all that the 2013 Income Limits for the Single Family Guaranteed Loan Program have changed.

As we look at the published changes, the largest change for the Income numbers in NC will be seen in the Charlotte Mecklenburg area and the Durham area – where limits decreased significantly

The North Carolina USDA Home Loan programs provides no downpayment loans with very low interest rates.  The program is designed for those who want to live in more rural parts of North Carolina.

The two major Qualifying Requirements are that the property must be located in a “designated” USDA Home Loan area – and that the household income must meet the limits set by USDA.

Effective Immediately the 2013 USDA Home Loan Income Limits for North Carolina that moved lower are: [Read more...]

FHA Loans Asheville Buncombe County NC

FHA Loans asheville ncFHA Sales Price Limit for MSA Asheville, NC

Buncombe County, NC

  • One Family Dwelling:  $303,750
  • Two Family Dwelling:  $388,850
  • Three Family Dwelling:  $470,000

If you are interested in purchasing a Quadraplex, please call us for more details.  While this is a great investment strategy for some, there are many details that we will need to go over with you.

Maximum Income Limits in Asheville, NC [Read more...]

Today’s Best Mortgage Rates for January 2013

Mortgage Rates are going up!Rates went up late last week – not much, but still they moved higher.  An improving outlook for global economic growth caused investors to shift assets from bonds to stocks, reducing demand for long-term fixed-rate assets including mortgage-backed securities (MBS). We are still in a range for today’s best mortgage rates that is considered “historic low mortgage rates.”

The global economic data released last week was encouraging. Important manufacturing reports in Europe and China exceeded expectations. In the US, the Jobless Claims surprised investors for the second straight week. There is also a growing sense that the worst of the debt troubles for the European Union have passed. Stock markets around the world are hitting multi-year highs.

The Housing data released last week also reflected solid year over year improvement. December Existing Home Sales were 13% higher than one year ago, to the highest level since 2007. READ – NOW is the time to buy a house.  Home Sales prices are going up in North Carolina, and Raleigh and Cary in particular, as the number of houses available to purchase is declining in multiple price points.  First Time Home Buyers wanting to take advantage of the new NC First Time Homebuyer Programs are having trouble finding that “right” house as multiple offers are being made on the same properties. [Read more...]

Refinance When You Owe More Than Home Is Worth

HARP RefinanceIs the Harp 2 refinance mortgage program shaping up to be great news for Raleigh, Cary and Clayton, North Carolina home owners?  Yes.  Unlike many of the previous “government” refinance mortgage programs, the HARP 2 has a real practical effectiveness.  North Carolina real estate owners are lining up as evidenced by the number of applications and inquiries we receive everyday from folks who are ready to take advantage of the HARP program.

Why the optimism in North Carolina?  Simply because the 2012 revisions bring very significant changes to the HARP refinance program for North Carolina home owners.  One of the most noteworthy changes is the fact that you can, “owe more on my home than it is worth” and not be excluded by a North Carolina HARP Refinance Lender.

Is this for real??

Yes – you can owe multiple times – some owe two, three or even four times what their home is currently worth and that may not impact their ability to get a low HARP mortgage interest rate.  Every hour we are fielding questions like, “Do I qualify for a HARP refinance?” or, “Does my Wilmington home qualify for HARP?” [Read more...]