Although March seems early for spring, the signs are here – crocus and daffodils in bloom, calves and lambs romping in greening pastures. “For sale” signs popping up and, although local builders have been able to work most of this mild winter, there is increased building.
If this is the year you are considering buying a home, it is not too early to start planning on how you will finance the purchase.
The Great Recession of 2007-09 was in large measure attributed to a housing boom and loose lending. As a result, the mortgage process has changed dramatically – we have gone from an environment where if you could fog a mirror you could get a loan (OK, maybe a bit of an exaggeration) – to a highly regulated process.
This is not to say that getting a mortgage is impossible – quite the contrary. Interest rates are low and, locally, home values are still enticing. It is now important to pre-qualify so you are aware of the requirements and able to shop for a home in your price range.
The main factors in determining your borrowing capacity are credit, income and property.
Credit scores and credit history are both evaluated. You can order your free annual credit report at www.AnnualCreditReport.com. While you will not get a credit score, you will be able to look at your credit history and request correction of inaccurate information. Any outstanding collections must be paid off. Your credit score will be one of the factors that determines your interest rate.
If you are a W-2 wage earner, your income is based on your gross annual income. If you receive overtime, bonus or commission, a two-year history is required and the average is used.
The self-employed have had the most dramatic change for calculating income. If you file a Schedule C – we must use your net income – we can add back depreciation and/or depletion. K-1 income is generally averaged for two years. You will need to account for a two-year work history – educational history may be used for a portion of this time.
As of Jan. 10, conventional lending has a maximum debt-to-income limit of 43 percent. This is determined by dividing your total monthly debt including the principal, interest, property taxes, homeowners insurance and, if applicable, mortgage insurance and homeowners association dues by your gross income.
Property is classified according to its construction. The classifications are stick-built or modular dwellings, manufactured and condominiums. The type of mortgage, the amount of down payment and credit score limits vary according to the construction.
We are fortunate in this area to have the Regional Housing Alliance (online at www.rhalpc.org). This government agency, supported by La Plata County, Durango, Bayfield and Ignacio, provides homebuyer education classes, credit counseling and, best of all, down payment assistance to qualified La Plata County residents.
Julie Cooley is a vice president and mortgage loan originator (NMLS 580315) at First National Bank of Durango. She can be reached at jcooley@fnbdurango.com.
