“Going, Going, Gone” is the tune to new regulations set forth by the mortgage industry.
As of the end of March 2008, mortgage insurance companies have changed their standards for insuring conventional loans. They will no longer insure loans over 97% Loan To Value and many are making changes to their acceptable Debt Ratio requirements.
For the past few years you could get mortgage insurance up to 100% with Debt Ratios at 65% of gross income. Look at this example:
- Joe and Amy just graduated college
- They both have car payments of $350, credit card minimum payment of $100, and student loan min payments of $300, while their combined income is $60,000
With the old guidelines this couple could take their Debt Ratio up to $3250 per month in debt payments (65% of gross $30,000). That means their home payment could be $2,150 which would buy a $280,000 home!
Same couple today is now limited to borrowing just 97% with debt ratios of 41% (aprox $2,050 per month total). Therefore combining their other debt obligations will lower their housing ratio payment to only around $950 (not $2150) which would buy a $135,000 home.
With this said, it looks like the days of people buying homes they can actually afford are back!
-Author, Kenneth Wohl of Spiritbank Mortgage
About Ryan Hukill
