Mortgages in New Orleans: What does it take to Qualify for a Mortgage in 2011?



Mortgages in New Orleans



If you are currently shopping for mortgages in New Orleans, chances are that your loan will go through Fannie Mae and Freddie Mac. These two government-sponsored enterprises (GSE’s) purchase mortgage loans from lenders and sell them to investors. The transformation of a mortgage loan into an “investment” happens in the secondary mortgage market.

Before 1938, banks and private lenders loaned money for mortgages directly to homebuyers. The Great Depression and President Roosevelt’s “New Deal” created a new method for issuing home mortgages that would guarantee mortgage lenders from default. This new method was the creation of the secondary mortgage market. Secondary mortgage markets determine the lending guidelines for individual lending companies. Their standards for home mortgages will be the standards followed by your individual lender.

There are three basic components in obtaining a home mortgage in New Orleans. They are “credit score”, “debt to income” and “loan to value.”

Your credit score and credit history are crucial in obtaining a home loan in today’s market. Each of the three major credit agencies uses different system to determine your credit score. Experian uses the FICO score based on a model created by Fair Isaac and Company. FICO is the best-known type of scoring system. This score takes into account the length of time you’ve had credit, your payment history, how much you owe and how many times your credit has been checked. The minimum FICO score for a 2011 prime mortgage is 680-720.

If you have a high FICO score, it shows you are a better credit risk and may qualify for better mortgage rates.

The next component in determining your ability to repay a loan is your “debt to income” ratio (DTI). A standard formula used in determining qualifications is the 28/36 ratio. The first number in this ratio is the maximum percentage of gross monthly income that can be applied to housing. This amount includes loan principle, interest, PMI (private mortgage insurance) and taxes.

The second number is the maximum percentage of your gross income that can be applied to housing expenses and recurring debt. Recurring debt includes things such as car payments and car insurance, monthly credit card payments and other loans (such as student loans) and alimony.

Finally, the “loan-to-value” ratio is the number arrived at for applying the amount of your loan as a percentage of the total value of the property. If the ratio is high, lenders can require borrowers to purchase ‘mortgage insurance” to protect lenders in case a borrower should default. This increases the cost of the mortgage.