I’m tired of NAR and the rest complaining that lending standards are tight. And that a housing recovery is being held back by unnecessarily-tight lending standards.
Phooey. Thanks to the FHA, people with mediocre credit and hardly an cash can still borrow obscene amounts of money.
In the Bay Area for example, to purchase a $700,000 home with an FHA mortgage, a buyer would need:
- $24,500 down-payment (which could be a gift from Mom & Dad)
- $14-$15,000 for closing costs and prepaid expenses (which could also be a gift from Mom & Dad or credited from the Sellers)
- A mid-FICO score of 640 (the middle score from the 3 credit bureaus)
- 2 months of reserves in the bank ($9,485)
- All collections issues cleared up on their credit (harsh, I know)
- 2 years employment at the same job, but there could be some flexibility
- A back-end Debt-To-Income ratio of up to 50%, meaning:
- if the monthly PITI (plus mortgage insurance) for this purchase is: $4,742.52.
- then the gross monthly household income needs to be $9,500 – or $114,000 per year.
- (If there are car payments, student loans payments, or regular revolving credit card payments, then those amounts would be added to the $4,742.52 and income would need to be a little higher to achieve the same 50% back-end ratio. For example, if there were $500 monthly student loan payments, monthly income would need to be $10,500.)
Here’s the calculation breakdown:
- Loan amount of $682,255 (includes 1% FHA fee)
- Interest Rate of 4%
- Monthly payment is $3,289.76 plus:
- $75 insurance
- $729.17 property taxes
- $648.59 in FHA mortgage insurance
So with as little as $9,485 in the bank, a 640 credit score, and a gross household income of $114,000, you can buy a $700,000 home in the Bay Area.
Please stop whining about how restrictive lending standards are today.