Mortgage application process has new rules

The magic FICO score has changed in the last year.

Consumers should be aware and prepared for the changes in the mortgage application process, said Dale Siegel, author of the book The New Rules for Mortgages. Siegel, an attorney and president of Circle Mortgage Group in White Plains, NY, teaches at New York University and Baruch College.

She advised REALTORS® to ask several questions:

• Does your client know his FICO (Fair Isaac Corporation) score? “The new magic number is 680,” Siegel said. “That’s the bottom number for most lenders. Clients in the 680 range will have to put more money down to qualify.” For scores 720 and above, there’s a tiered interest rate offered.
• Does he have his last two federal tax returns? “No-income verification loans no longer exist,” Siegel said. “Especially if the client is self-employed, he needs to show his income not just that the business is solvent.”
• What’s his PITI? This is the sum of the principal, interest, tax and insurance and when applicable, mortgage insurance and homeowners association fees. “The typical PITI should be no more than 38 percent of the client’s gross monthly income,” she said. “Banks did allow more but they’re much stricter about these ratios today.”
• What is his down payment/asset and reserve situation?  “There’s very little private mortgage insurance available so people need to put down a larger down payment,” Siegel explained. Banks used to require two monthly mortgage payments in reserve, now many are looking at as much as six months.
• How stable is his employment? “He should take a look at the industry he’s in,” Siegel said. “If he’s self-employed, how stable is his business? Insurance underwriters are looking at employment to see if he’s in an industry that has experienced layoffs. It’s the good and the bad. If he doesn’t fit into the box, the client needs to make a plan and have a little more money as leeway.”

Siegel doesn’t expect the situation to get better anytime soon. “Consumers need to be prepared. Applying for a mortgage is a more complicated process and consumers need to be aware. They should have their documents in order and be ready once they find a house. Patience is definitely a virtue in this process,” she added.