A surprising real estate statistic is that approximately 25 percent of home purchases are made by all-cash buyers. However, the other 75 percent must get a loan and comply with the standards required to get that loan approved. The guidelines to qualify for a mortgage have become stricter in some instances and looser in others. What options are available to prospective homeowners?

To secure the best and lowest rate, it is essential to have all necessary documents prepared and a high credit score, preferably 720 or greater. Scores range from 450 to 840, with anything over 720 considered an above-average credit risk. A good, steady W2 income and a sizable downpayment of preferably 20 percent are also advantageous in getting the best rate, along with no credit report blemishes or late rent/mortgage payments within the last 24 months.

Most people have issues from time to time, whether by income being interrupted, switching jobs, going from 1099 wages to W2, or vice versa. Sometimes these issues impact credit, as when an illness in the family necessitates another family member stopping work to stay home and provide care, resulting in a gap in employment or falling behind on the rent/mortgage payment because that money is needed for medical bills. In those instances, many end up turning to FHA programs, which are less restrictive on credit but require mortgage insurance, usually an upfront fee of approximately 1.25 points, or one and a quarter percent of the total amount of the loan. Once there is 20% equity in the property, a homeowner may petition to discontinue the insurance and refinance into a better loan, with that equity, one of the most important financial assets in a homeowner’s portfolio, indicating to lenders that the homeowner is likely to continue making payments to avoid foreclosure.

Those with favorable credit scores and income have an easier time getting the best rates possible. Still, many options are available through FHA programs for people with some credit issues seeking to get into a property at an affordable rate. This week, Jeff’s guests include:

– Luke Manke (Malibu Funding) discusses the level of interest in the market currently.

– Tim Wise (The Lender) outlines first and second mortgages.

– Bill Orr (Malibu Funding) talks about the competition for buying a home.