You’ve done everything right; you’re credit is strong and stable, yet you still have problems securing a mortgage. What will it take?
Ripples from the national crisis are affecting all borrowers nationwide as they try to secure new mortgages. And while those credit-worthy borrowers would think they have nothing to worry about when it comes to securing a loan that just isn’t the fact anymore.
Would-be borrowers these days may have to set aside a little more for a down payment, have a slightly higher credit rating than the perfect rating they thought they already had, and plan on a lower debt-to-income ratio than they would have a couple of years ago.
Changes to guidelines are being imposed on lenders and their customers by mortgage insurers and the secondary mortgage market — the big banks or federal institutions that buy your mortgage from smaller banks or credit unions.
These days’ mortgage insurers have stricter guidelines than lenders.
One of the biggest losers in the banking meltdown was mortgage insurance companies; now they won't insure loans if they don't meet stricter qualifications. And without insurance, a mortgage becomes too risky and unsalable to investors, which mean lenders probably won’t be interested in making the loan in the first place.
Mortgage insurance guidelines are frequently tougher on loans that come through mortgage brokers than they are for loans that come in through direct lenders like banks yet mortgage brokers can be a great tool for finding the best deal for your loan.
Even for people considered good credit risks are having trouble securing a mortgage loan.
Sure, FHA guidelines say the qualifying credit score is 640 yet that has been really difficult to get approved. And while there may be exceptions to the rule, typically your score must be closer to 700 in order to get underwriters to give the borrower more latitude.
Despite the economy and credit tightening, there are no shortages of potential homebuyers looking to get loans but there is a huge shortage of loan approvals.
Even when an insurer's guidelines theoretically allow a loan to be approved on the premise of your credit-worthiness, lenders nationwide report that getting an actual approval has been nearly impossible in troubled states that have high occurrences of economic distress.
What Should You Do?
Jump through hoops, continuously explain and submit paperwork and in the end you’ll probably work directly with the big banks since mortgage insurers are more apt to be lenient with “bigger” than “smaller”.
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