Experts say that now is a great time to buy local real estate because housing prices are at a 10-year low while the cost of borrowing money is near an all-time low.
This combination of low prices and miniscule interest rates is making the true cost of buying a house and paying off a mortgage as affordable as it’s been since 1997, according to Joseph Rand, managing partner and general counsel of Better Homes and Gardens Rand Realty.
But if it were really that easy, everyone would be doing it the way anyone with a checkbook, it seemed, was able to buy a home in the Lower Hudson Valley during the “bubble” market of the mid-2000s.
Instead, mortgage experts say these past couple of years have produced a more healthy type of home-buying process, one where banks are doing a responsible amount of due diligence and requiring reasonable debt-to-income ratios.
In other words, half of your salary can’t go to paying a mortgage anymore.
“It is harder to get a mortgage than it was in 2007,” says Jason Auerbach, divisional manager for First Choice Loan Services, a national mortgage lender.
He said his company requires a maximum of 45 percent D-I (debt-to-income) ratio, and other banks might require higher incomes to take on such debt.
“In today’s environment, you can still get a mortgage even if you have a 620 credit score,” Auerbach says. “Do you make money? Do you have money? Do you pay your bills? If you do those three things, then you’re OK.”
One of the biggest problems Auerbach has seen lately is when mortgage applicants come to him soon after starting their own business.
These entrepreneurs of the post-credit-crisis economy can have a problem getting a mortgage if their income isn’t in line with what’s being reported to the Internal Revenue Service. Someone who’s “making” $250,000 per year can’t declare only $34,000 to the IRS and expect the bank to trust the $250,000 number.
“You have to pay your taxes to get a mortgage,” Auerbach says, adding that a couple years of tax returns as well as pay stubs and bank statements are among the many documents that need to be submitted before a bank will consider lending someone money to buy a home.
When it comes to parents trying to help out their kids by giving them a down payment for their first home, Auerbach said that isn’t as easy to do anymore because not only do the parents need a healthy D-I ratio, the kid will, too.
Different types of loans
When it comes to down payments, no one has a sweeter deal than U.S. military veterans. The Veterans Affairs loan is the only plan available that allows for 100 percent financing, Auerbach says.
The next easiest program is a Federal Housing Administration loan, which only requires a down payment of 3.5 percent — $21,665 for a Westchester single-family home at the median sale price of $619,000.
Other traditional mortgages follow the guidelines set forth by Fannie Mae and Freddie Mac and require a 5 percent down payment; however, some retail mortgage lenders such as TD Bank won’t take less than 20 percent, a mortgage consultant for the bank said.
Those requirements for down payments become even more strict when a buyer is seeking a mortgage for a second property — an investment strategy many are considering now due to these new levels of “affordability” in the market.
- Federal tax returns (two years)
- W2s (two years)
- Pay stub (two months)
- Bank statement (two months)
- If you’re self-employed, be prepared to show your business tax returns and a profit-loss statement
- Appraisal on the property, title work
For more information on mortgages, visit fcdhome loans.com.