Mortgage loans ARE out there...but you'll have to do your homework

When I wrote the story that home buyers need lots of cash to qualify for Fannie Mae and Freddie Mac loans based on a Wall Street Journal story, some mortgage brokers wrote to me and said that's just not true nationwide.

You will find those rigid standards if you live in an area designated by Fannie and Freddie as a Declining Market Area, which is true about the New York/New Jersey area, but it's not true just outside that area in Pennsylvania. Other hard hit ares where it's tough to get a loan without a lot of money down include Florida, California, Michigan and Nevada.

So if you're looking to buy in an area not yet determined to be a Declining Market Area, you can find Fannie and Freddie loans for just 3% down if your credit score is 700 or higher and just 5% down if your credit score is 620 or higher. You won't get the best loan rate with that little down, but you can buy a home as long as you have enough income, according to Darryl Steffey of Asset Mortgage based in Pennsylvania. The figures and percentages I'm using as examples were supplied by him. Interest rates do change daily, so I can't guarantee you'll get these exact rates.To qualify under current Fannie/Freddie rules, your total house payments (including principal, interest, taxes and insurance, also known as PITI) can not be more than 29% of your income. So if you make $65,000, the most you can afford to pay monthly for PITI is $1,570. Also, your total debt payments per month cannot exceed 41% of your income. So total debt if you're making $65,000 is $2,220. You can't pay more than $650 for all other debt including car payments, credit cards and any other loans you may have.

That's why I always recommend to people who are thinking about buying a car or other major purchase plus are looking for a home to be sure to close on the home loan first before buying anything else. So many people I've worked with in the past lost a house because they bought a new car and could no longer qualify for the loan.

So what interest rates can you expect? If your credit score is 700 or higher, you can put down as little as 3% and get a loan at 5.75% with no points. You will need to pay $118 per month toward Private Mortgage Insurance on top of your other PITI costs for a $150,000 mortgage. If your credit score is 620 or higher and you put down 5% you can get an interest rate of 5.25% with no points. You will pay $89 month for PMI for a $150,000 mortgage. With these numbers you can use the mortgage calculator at to calculate your principal and interest payment based on the mortgage you'll need to buy the house you want. The PMI costs I quote here are based on a $150,000 mortgage. If you want a higher mortgage those costs will go up.

Once you've calculated the principal and interest costs using the mortgage, you will then need to add your anticipated monthly costs for PMI, your monthly tax estimate and your monthly insurance estimate to get your total housing costs. Divide that number by 0.29% and you'll know how much gross monthly income you'll need to qualify for that mortgage. Then divide it by 0.41% to find out how much you can pay out in total debt payments and still qualify for that mortgage.

If you want to buy a home, talk with your bank and local mortgage brokers, to find out where you can get the best rate and the best terms. If your credit score is 700 or above you may be able to find better terms than these. But, you'll have to do your homework and shop around.

Lita Epstein has written more than 25 books including the "Complete Idiot's Guide to Improving Your Credit Score" and "The 250 Questions You Should Ask About Buying Foreclosures."
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