According to the U.S. Department of Housing and Urban Development, 2017 shows great potential for growth in home sales, especially since last year’s sales were the highest they’ve been since 2007. As a result, the real estate market has become increasingly competitive in many parts of the country—but this doesn’t mean mortgage qualification has matched this level of competition. In fact, the technology company, Ellie Mae, has recently revealed that homebuyers with low FICO scores or high debt-to-income ratios could still qualify for that desired mortgage.
Although the credit scores of more highly qualified applicants usually range from 600-799, this does not necessarily mean that mortgage applicants with lower scores will be denied their desired mortgages. In December alone, 5 percent of all Federal Housing Administration (FHA) loans had FICO scores below 600.
Similar to credit scores, many borrowers have more wiggle room in their debt-to-income (DTI) ratios than usually expected. More specifically, the standard buyer closing an FHA-backed loan in December had an average back-end ratio of 42 percent. This ratio accounts for the buyer’s total monthly debt obligations, including payments due on their mortgage, against their monthly gross income. When other factors are considered in the application, sometimes an acceptable DTI will go over 50 percent!
So what exactly is the key to qualifying for a mortgage with credit and debt problems?
Counterbalance each negative factor with a positive. For example, if you’re looking to borrow but have a low credit score, highlight your strong qualifying features elsewhere in your application—like maybe you could afford a higher rate.
According to John Walsh of Total Mortgage Services, counterbalancing is immensely important because “it’s all about the total picture. The whole application has to make sense.” So by counterbalancing your qualities, loan officers will be much more likely to approve that loan.
For more information about mortgage qualification, or to learn more about the home buying process, contact one of our mortgage specialists today.