In the past 20 years, we’ve seen some pretty crazy swings in terms of what it takes to get a mortgage. In 2005, anyone with a pulse could get one (which helps explain the 2008 recession, but we won’t get into that today). In 2009, only the most qualified of buyers could get a mortgage and interest rates were through the roof. So the question is, where are we today?
We’re happy to see a healthy medium - while it’s pretty simple for qualified buyers to get a mortgage, it’s much harder than ordering a cheeseburger at your favorite fast food restaurant like it was in 2005 (see more details on todays lending market here).
Let’s get into the specifics on what it will take for you to get that loan.
Debt to Income Ratio
Lenders want to see that you have a healthy debt to income ratio. You get this by dividing your income (any money that you have coming into your bank account) by your debt (the things you’ll have to pay for each month - mortgage payments, car loans, student debt, minimum credit card payments, etc). This ratio should be below 55% and, for many loan programs, below 45%. So, for example, if you’re bringing in $10,000 each month, you should only have payments that equal up to $4,500 or $5,500, max. The more income and the less debt you have, the better your chances of qualifying with a better interest rate.
Different Washington Loan Programs
There are over 400 different loan programs in Washington, so we wanted to focus on the ones that we see being used most:
Conventional Loans: With a conventional loan, you’ll pay 3% down and will typically need a credit score of 620 to qualify. This is a pretty popular option, and usually the best way to go if you're eligible.
FHA Loans: These are easier to qualify for, with a required credit score of 580 and allowing for a debt to income ratio of up to 55%. There’s also a state program in Washington (called DownPayment Assitance, or DPA) for financing the down payment, so that you can essentially buy the home with no money out of your pocket (but without a down payment, your debt to income requirements will change).
VA Loans: Qualifying veterans can use this loan type to purchase a home with no down payment.
USDA Loan: The USDA sponsors a loan to promote growth in rural areas. It’s 0% down, and available east of Highway 9 and north of Stanwood
Jumbo Loans: For loans of over $592,000, buyers will usually need to go with a jumbo loan. You’ll need to put 15% down and have a credit score of over 660.
Get started on your home purchase
We advise all of our buyers to follow three steps before they start looking for a home. Getting with a loan officer is one of these, because it’s important to know what loan and amount you’ll qualify for before you start searching the market.
Watch our video for more information on home loans, and make sure to get in touch below! We have great connections with very credible lenders who will help you get the best financing possible.