As a result of the bursting housing bubble, financial industry meltdown and current foreclosure disasters, lenders have returned to a far more conservative approach to mortgage lending. We are already seeing mortgage lenders requiring larger down payments of 20 percent or more. Credit scores in the 600s are no longer enough to qualify for favorable loans. Loan officers are rigidly enforcing rules on documentation of employment, assets and income. Lenders' underwriters are applying the traditional mortgage debt-to-income ratios of 28/36. What this means is that no more than 28 percent of your gross income should be spent on your mortgage principal, interest, taxes, insurance (known as PITI) and condo or homeowners' association fees if applicable. No more than 36 percent of your gross income should be spent on PITI plus all other debt, including car payments, student loans and the like.
If your debt-to-income ratios do not work for a particular home, and you cannot afford to increase your down payment, you will not qualify to buy that home.
Anyone facing a real estate decision today should carefully analyze their buy/sell/refinance decisions, keeping in mind the possible impact of these proposed changes on the deduction of mortgage interest and real property taxes and the capital gains treatment on any future appreciation. There are many online mortgage calculators that can assist you in determining how much you can really afford.
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