Minnetonka Mortgage News

Twenty years ago our industry relied on manual underwriting. An underwriter scrutinized documentation to confirm every detail with a strict adherence to debt-to-income ratios to ensure the mortgage payment wouldn't exceed 28% of monthly gross income, and that total debt (e.g., school loans + car loans + house payment) wouldn't exceed 36%. Every late payment or blemish on a credit report needed to be explained in writing. Funds for the down payment were closely reviewed to make sure the money came from an acceptable source.

In the mid- 1990s, sophisticated computers started processing loan applications, and underwriters simply confirmed that the data was input correctly. If the computerized underwriting system said you were approved, you were. At the same time, Congress was encouraging home ownership for low- to moderate- income families and the computers were programmed to accept lower qualification requirements. Credit scores in the 500s were approved, zero down payment loans were widely accepted and debt-to-income ratios over 65% were often approved. Sometimes little or no supporting documentation was even requested. Even then, RMG felt it was important to keep the human element in process; we would frequently consult with clients on responsible mortgage finance choices- regardless of whether they received approval or not.

We are now somewhere in between the extremes of the two systems: computers process the applications, but underwriters are involved in final review. Documentation is required on every loan to support income and assets. Credit is reviewed and it must be good- but it doesn't have to be perfect. People with credit scores higher than 740 for conventional or 660 for FHA or VA financing will receive the best interest rates and loan terms available, but individuals with lower credit scores aren't automatically denied. Paying bills on time and using credit responsibly makes a difference, so people who manage their personal finances well will be rewarded. Debt-to-income ratios are currently approved based on several factors, including your credit score, the loan-to-value of the home and cash reserves (the money you have left over after closing). Down payments are generally not required on VA loans and relatively small down payments of 3.5% on FHA loans and 3-5% or more on conventional loans is still the norm.

Loan terms are currently favorable and despite what you may hear, it is possible to get a loan. And don't forget: when you take low home prices and add low interest rates, you get great affordability! Have questions about what this means for you? Give me a call at 612.816.1511