Berkshire County Realty Street Blog

Income Needed to Qualify for a Mortgage Loan

When you apply for a home loan, the mortgage lender will conduct a thorough review of your income situation. Income is one of the most important factors to a lender, along with your credit score and debt level. This article answers a common, income-related question that home buyers often ask: How much income is needed to qualify for a mortgage loan?

The first thing to know is that mortgage lending standards and requirements can vary from one lender to the next. For example, if I approach a handful of lenders about a certain home loan, and my income level is on the "border" of acceptability, one company might approve me for the loan while others turn me down. That's because they have their own business models and assessment procedures.

In addition, your household income level is only one piece of the mortgage qualification process. Lenders will review other things as well, including your credit score and your total amount of debt. Remember, your debt takes away a big part of your income -- so the two things are usually reviewed together. 

How Much Income to Qualify?

These days, most lenders set the bar somewhere around 43% to 45% for the total debt-to-income ratio, or DTI. This means that if your recurring monthly debts use up more than 45% of your monthly income, you might have trouble qualifying for a loan. On the other hand, a borrower who only uses about 35% of her income to cover the monthly debts should be in good shape, as far as lenders are concerned.

These numbers are not set in stone. Some lenders may allow total DTI ratios above 45%, especially when there are certain "compensating factors."

According to the Consumer Financial Protection Bureau (CFPB):

"Larger lenders may still make a mortgage loan if your debt-to-income ratio is more than 43 percent ... But they will have to make a reasonable, good-faith effort, following the CFPB’s rules, to determine that you have the ability to repay the loan."

So, where do you stand? What's your total debt-to-income ratio? You can find plenty of calculators online to help you calculate your DTI level. That's a good place to continue your research.

Applying for a Mortgage Quote

When you've done the necessary research, and feel that you're ready to take on a mortgage loan, the next logical step is to apply for quotes from lenders. The good news is that this process is easier than ever, thanks to the internet. You can apply online and get information sent to you by email. 

Granted, you'll have to fill out a more complete application at some point, along with plenty of supporting documents (tax records, bank statements, etc.). But the initial online application is a good way to get the ball rolling.

Don't Overstretch Your Income

The last point I want to make is that a mortgage lender cannot tell you what you can afford. They can only tell you what they are willing to lend you, in terms of a loan. You must determine your own affordability limits, before you even start talking to lenders. 

Doing some basic budget math up front could help you avoid financial issues down the road. So take a good, hard look at your current debt and income situation -- and decide what you're comfortable paying each month in the form of a mortgage payment.
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Posted by Sherry Street on May 7th, 2018 11:53 AM

Heads Up Home Buyers: Mortgage Rates Just Took a Big Jump

Are you thinking about buying a home in 2018? Are you on the fence about entering the real estate market? If so, you might want to consider buying sooner rather than later. Mortgage rates just rose again, and economists from Freddie Mac and other groups are predicting that they could rise gradually throughout 2018.

Mortgage Rates Hit Highest Level Since December 2016

During the week of February 8, 2018, the average rate for a 30-year fixed home loan rose to 4.32%. Rates haven't been that high since December 2016. This is based on the weekly mortgage industry survey conducted by Freddie Mac. The average rates for 15-year fixed mortgages and 5/1 ARM loans rose as well. Those are the three categories tracked by this survey.

According to the Freddie Mac report:

"The U.S. weekly average 30-year fixed mortgage rate rocketed up 10 basis points to 4.32 percent this week. Following a turbulent Monday, financial markets settled down with the 10-year Treasury yield resuming its upward march. Mortgage rates have followed. The 30-year fixed mortgage rate is up 33 basis points since the start of the year."

This is actually the continuation of a trend that began a few weeks ago. For a while now, mortgage rates have been following a steady upward path. You can see that clearly in the chart below. During the latter half of 2017, and into the beginning of 2018, the average rate for a 30-year mortgage hovered below 4%. Then it crossed that threshold and shot up by 25 basis points (0.25%), which brings us up to the latest reading.

Chart: 30-Year Loan Rates Over the Last Year

The chart below, courtesy of Freddie Mac, shows average rates for a 30-year fixed home loan going back one year. As you can see, rates are higher now (on the right side of the chart) than they've been all year. 

Chart: Average mortgage rates over the last year | Source: Freddie Mac PMMS

This is not surprising to industry watchers and analysts. Last year, economists from the Mortgage Bankers Association and Freddie Mac were predicting that rates would rise gradually throughout 2018. Some forecasts suggested that the average rate for a 30-year mortgage would reach 5% by the end of this year. And that's entirely plausible, given this recent uptick in lending rates.

So what's causing this recent rise in borrowing costs? Several things. Over the last year, the Federal Reserve has been gradually increasing the short-term federal funds rate. This can have an indirect affect on consumer borrowing costs. The Fed's policy changes, along with general economic improvements, are partly what's driving the rise in interest rates -- including those used for mortgage loans.

And some economists are predicting that we will see a continued yet gradual rise in rates throughout 2018. 

All of this makes a good argument for buying a home sooner rather than later. Home buyers who postpone their purchases until later in the year could encounter higher mortgage rates. And when you consider the fact that home prices are still rising in most parts of the country, there's even more urgency.

Granted, you should never make a home purchase until you are 100% ready to do so, financially and emotionally. It has to be the right move for you, one that will improve your qualify of life in some way. With that being said, it might make sense to buy sooner rather than later to avoid possible rate hikes and home-price increases. 

Note: Mortgage rates can vary from one borrower to the next due to a number of factors, including credit history and the type of loan being used. The numbers presented above are based on averages reported by Freddie Mac.
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Posted by Sherry Street on February 27th, 2018 11:57 AM

What's Happening in the Housing Market, as of January 2018
Home prices across the country continue to rise, though they're showing signs of slowing a bit. Mortgage rates, meanwhile, continue to hover around 4% on average. And inventory is still constrained. Here's a look at these and other housing market trends, at the start of 2018.

Home Prices Still Climbing
Home prices in most cities across the U.S. continue to rise, posting above-average annual gains. According to the latest data reported by Zillow, the median home value for the nation as a whole rose by 6.5% over the last year or so. That's more than the historical average for annual price growth, going back several decades.
Economists predict that home prices will slow a bit during 2018, perhaps returning to a more "normal" rate of appreciation over the coming months. Of course, these kinds of trends can vary by location. Some markets are more competitive than others, with less inventory and more demand. And those markets will likely outpace the national average in 2018.

Mortgage Rates Break the 4% "Glass Ceiling"
On January 18, Freddie Mac announced the results of its latest Primary Mortgage Market Survey® (PMMS). This long-running survey gathers interest rate data from more than 100 lenders nationwide, to compile an average.

The average rate for a 30-year fixed home loan rose to 4.04% for the week ending January 18, 2018. That's the first time this average has risen above 4% since July of 2017. (For the last few months, it has been hovering below 4.0%.) So we've crossed a threshold in that department.

Analysts with Freddie Mac and the Mortgage Bankers Association expect rates to rise gradually over the coming months. But, as usual, there will probably be some ups and downs along the way.

Limited Inventory in Most Housing Markets

Here's a trend that's very relevant to home buyers. Inventory in most real estate markets across the country is tight right now, in relation to demand. This is partly why home prices have been rising steadily for the last few years. There just aren't enough homes listed for sale in most areas to meet the demand from buyers.

According to a recent news release from Zillow, there are 10% fewer homes on the market today (nationally) than there were a year ago. In some of the markets where prices are rising fastest, there are 40% fewer homes compared to a year go.

To quote their report:

"The number of homes for sale nationwide has declined on an annual basis for the past 35 straight months, and just 16.7 percent of a panel of housing experts surveyed in December 2017 expect a meaningful increase of home building in 2018, a sign that limited inventory could continue to drive the housing market this year."

This underscores the importance of having help from an experienced real estate agent. Now, more than ever, it's important for home buyers to make strong offers in a timely action -- and to support those offers with actual market data. This is the key to success in a competitive market with limited inventory.

So those are some of the most important trends in the current housing market, as we head into 2018.
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Posted by Sherry Street on January 19th, 2018 10:41 AM

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Posted by Sherry Street on June 8th, 2017 9:21 AM