For work I was at a local branch of PNC Bank, which is also my personal brick and mortar bank. Now I hardly ever have to go inside a bank what with ATM’s and on-line banking. So I was just curious and looked over their information for fun and they had a “Preparing for Homeownership Qualifier Worksheet” booklet that piqued my curiosity.
FYI, PNC is a regional bank that operates in 17 states, mostly in the East, but also has branches in the Midwest. It is currently the fifth largest bank in the U.S. Anyway, I have my loan through Wells Fargo, a fixed rate 30 year loan at 4.75%. But I was curious to see what a bank would tell you about qualifying for a loan.
After some introductory fluff, they talk about the down payment you will need. They state that lenders require home buyers to contribute funds toward the purchase of a home. So far so good. Then they tell you that the down payment can be as little as $500, and that no down payment is required for VA loans, and that there are down payment assistance programs available. Isn’t that kind of thinking by banks and individuals part of what got us into the housing mess we are in now? I was pretty surprised. Now maybe they just say that and there qualifying is stricter, but I was shocked that they would say things like that in print. Generally speaking, I believe personally that if you don’t have at least a 20% down payment, you should not be buying. Of course there could be exceptions, but not many.
The material then went over some of the costs of owning a home, things like monthly mortgage payment, taxes, insurance, repairs and maintenance, utilities, furnishings, etc.
Then came the qualifying worksheet. It was a pretty simple do it yourself check. Basically, they want you to have only 28% of your gross monthly income going toward monthly housing expenses (mortgage, taxes, insurance). They also want your total monthly debt to be less than 36% of your gross monthly income. Again, I think those numbers are high. Currently, my monthly housing expense is 18% of my gross monthly income. My total recurring debts is the same (only have a mortgage – no car or credit card debt).
My Mom, before she retired, worked in the lending department of a bank. As she has reminded me more than once – thae banks goal is to make money off of you; your job is to not let them! The more that they can get you to borrow, and they will try to get you to borrow more than you should, the more money they make.
You need to go in knowing what you can comfortably afford, not what a Bank or Credit Union or whoever tells you you can afford – even it its printed! Sadly, even after the crash, things haven’t changed that much in banking.
