Mark Wells at Preferred Financial encounters homebuyers each day, many of whom have been putting off buying a house because they either misunderstood the qualifications that are required, or because they did not understand the process itself. Here, he answers questions that are asked most often.
I heard that after the crash, lenders started requiring 20 percent down payment to buy a house. Is that right? I’m not really sure how this rumor began, but it was not true then and is not true now. For buyers who will be borrowing up to the conventional loan limit of $424,100, 5 percent is the standard, required down payment, and if you are a first time homebuyer, you may only be required to put 3 percent down. For FHA borrowers, the required down payment is the same as it has always been—3.5 percent. VA and USDA loans do not require any down payment, and provide 100 percent financing for purchases.
I’ve heard that my down payment has to come from money I have saved, and can’t come from a gift. Is that true? No, it is not true for any program. FHA has always allowed the entire down payment to be gifted by a near relative. The First Time Homebuyer programs of Fannie Mae and Freddie Mac also allow 100 percent of the down payment to be gifted. And even for standard, conventional loans, a 100 percent down payment gift is allowed if the down payment is at least 20 percent. If the down payment is less than 20 percent, your ‘savings’ portion only has to be 5 percent.
How good does my credit have to be to buy a house? In the aftermath of the 2007 crash, most programs enacted a 620 minimum score for qualifying. However, in the past few years, FHA has lowered the required score to 580, although in practice it can be difficult to obtain an FHA approval if your middle score is under 595.
If I have credit problems, can I just use a co-signer to qualify for the mortgage and to get a better rate? This may have been possible in “the old days,” but for the last 25 years, a co-signer cannot be used to overcome a credit deficit. The primary (occupant) borrower must still meet the minimum credit-score requirements, and then the co-signer can strengthen the debt-to-income ratios, the cash reserve funds required, and the overall strength of the loan. As far as the interest rate goes, all lenders for all programs use the lower middle score of the two borrowers for pricing the rate on the loan, so a co-signer will not help you get a better rate.
Mark has been qualifying homebuyers in the Upstate for over 25 years. He welcomes questions and comments and can help you plan to make home ownership a reality. He can be reached at 864-235-9596 or via email at Mark@TheGreatestRates.com.
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