Mortgages Today Take More Time, Money

Due to the recent fallout in subprime mortgages, lenders are now taking a closer look at applications for home financing. The changes in the approval process may ultimately cost many people, particularly subprime borrowers (those with FICO scores under 620), more time and money. In fact, in today's market, it may be unlikely for a borrower with a credit score lower than 620 to obtain a no-money-down loan; most lenders are requiring a minimum of 3% to 5% down and a solid verifiable income history. In fact, lenders have increased the minimum score for loans requiring no down payment from 570 to 620. The irony is that this same group of people could have easily qualified for this type of loan just a few months ago. Analysts and experts believe recent changes to the application process means 10% to 15% of borrowers who qualified under the old rules no longer qualify for 100% financing under the new rules.

Those who are self employed or who are paid in cash will have greater difficulty obtaining financing--particularly if they are in the subprime category. Many lenders are scrutinizing income history and may require FICO scores as high as 700 for 100% financing if there is no verifiable history of income. Additionally, home appraisals are being more carefully researched. In some cases, second appraisals are required for approval adding to the time it takes to get a loan regardless of credit worthiness and income. Many subprime lenders and those with loose lending policies have gone out of business in the crisis which means an increase in business at the remaining lenders adding to the length of time to approve an application.

So what can you do? One of the best things you can do if you're looking to buy a home is know your FICO score. You can obtain your FICO score from online sources (just Google FICO scores--I'm not advertising any of them here) or your mortgage professional. Talk to your mortgage professional about your score and how you can improve it. S/he may be able to refer you to a credit counseling agency that can tell you things like what types of accounts to open/close; which accounts to payoff first; etc that may result in your score going up. Also there may be programs in your area for first time buyers or for invidivuals looking to move into more depressed areas of a city or town. Second, keep good records. When you sit with a mortgage professional, have at least 2 recent tax returns and your last 3 or 4 paycheck stubs to show income history and work stability. Finally, consider putting something down. Banks are more willing to loan money to borrowers who put some of their own savings on the line.