WASHINGTON 鈥� Many homeowners who lost their houses to foreclosure when the housing bubble burst are expected to begin buying homes once again.聽 As they sit down with lenders, many 鈥渂oomerang buyers鈥� may be in for a shock when they discover what is required to get a loan.
鈥淭he game has changed,鈥� said Steve Cohen, mortgage banker with Talmer Bank and Trust in Rockville, Maryland.
It generally takes seven years for a foreclosure to disappear from a person鈥檚 credit report. Cohen says after the time has passed, a lender will document a previous foreclosure or short sale, but it won鈥檛 prevent someone from getting a loan.
During the time that a person was ineligible for a loan, they should have focused on raising their credit score.
Cohen says that if a homebuyer wants to take advantage of some of the lowest interest rates for mortgages, they should have a score of 680 or more. To get a loan, the lowest a person鈥檚 credit score should be is 640.
Cohen says the process for applying for a loan has also become stricter. Before the housing market crisis, a good credit score could qualify an individual for no-documentation loan.
鈥淭oday every 鈥業鈥� needs to be dotted and every 鈥楾鈥� crossed,鈥� Cohen said.聽Bank statements, W2s, pay stubs and other documents will be required.
Big changes have also happened to聽the debt-to-income ratio. Cohen says that before the bottom fell out of the housing market, some homeowners got loans with debt-to-income ratios up to 70 percent. Those days, he聽says, are gone.
Now, someone looking to receive a home loan must have a debt-to-income ratio of 43 percent or less. That means the car payments, credit card payments, and proposed mortgage payments of a person making $10,000 a month cannot collectively exceed $4,300.
The final shock for returning buyers may be the amount they need to bring to the table for a down payment. Some聽loans require three聽to five聽percent down, but others could be required to bring a 20 percent down payment to the table.
Cohen says the rules come with a goal of getting you the right mortgage:聽鈥淪omething that is going to allow you to enjoy your home and not stress you financially,鈥� he said.
