Whether you are considering the purchase of your first home or trading up to the home your family frequently fantasizes about, there are three crucial questions you must know the answer to:
What is the minimum down payment required to purchase a home?
What is the minimum FICO score required to qualify for a mortgage?
What is the maximum Back-End DTI Ratio (Debt To Income) allowed?
A survey conducted by Fannie Mae revealed startling information: most Americans don’t know the answer to these three crucially important questions.
Here is a graphic showing the results of the survey:
The percentages are quite disturbing but can explain why so many people believe they are not eligible to purchase a home whether it is a first home or a trade-up home.
Here are the actually requirements as per Fannie Mae:
Let’s Break it Down:
Who is Fannie Mae?
Well, it’s more of a “what”.
Fannie Mae is the shorthand for the Federal National Mortgage Association (FNMA, or “Fannie Mae”).
From their web site:
“We are a leading source of financing for mortgage lenders, providing access to affordable mortgage financing in all markets at all times. Our financing makes sustainable homeownership and workforce rental housing a reality for millions of Americans.
We also help make possible the popular 30-year, fixed-rate mortgage, which provides homeowners with stable, predictable mortgage payments over the life of the loan. Our tools and resources help homebuyers, homeowners, and renters understand their housing options.”
This post refers only to the Fannie Mae loan programs.
What is the minimum down payment required to purchase a home? 3%
For a $200,000 home, that’s $6,000. Simple math!
But that’s just the down payment – this does NOT cover the other expenses, such as closing costs. Make sure you budget for those too!
What is the minimum FICO score required to qualify for a mortgage? 620
If you’re not sure of your current FICO score, get a (proper!) free credit report. If you have any issues, fix them now.
Once you start the loan application process, you absolutely should NOT do anything to affect your credit score.
What is the maximum Back-End DTI Ratio (Debt To Income) allowed? 45%
I’ll explain the concept, if not the strict legal definition.
If you make $60,000 a year, that’s $5,000 a month.
Your monthly housing debt (total!) needs to under 45% of that number, or $2,250.
That’s the approximate monthly payment for a $450,000 house.
A 3% down payment would be $13,500.
And that *50% exception? If you’re that close, I’ll connect you with someone to work through it.
If you are considering purchasing a home, make sure you are aware of all your options before moving forward.
Contact me today and I’ll connect you with the right person and company for your situation.
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