Thanks to the surplus of inventory and historically low mortgage rates, the time has never been better to buy a new home. The reality is that most people do not have the spare bundles of cash lying around to buy their potential properties outright and need to rely on securing a home loan to finance their purchase of the American Dream.However, the landscape of the real estate market has substantially changed since the days of your parent's mortgage. Borrowers are now under greater financial scrutiny than ever as lenders now are interested in mitigating their chances of losing money because of a high-risk borrower.The change in attitude is a direct result of the mortgage meltdown kicked off by the subprime mortgage mess. Private lenders and federal agencies are tightening the standards associated with the loan approval process, leaving many potential homebuyers high and dry. Prior to the mortgage mess, it was not uncommon for five or six mortgage applications to make it through the approval process. According to The Legacy Group (Bellevue, Washington) loan officer Paul McFadden, "These days, the number of mortgage applications that get approved is probably three out of 10." Here is why:
Higher Credit Score Required: Lenders have used credit histories and scores to determine the potential "loan-worthiness" of applicants for decades. Now only potential borrowers with credit scores exceeding 700 can qualify for the best mortgage rates out there. Although there are still mortgage opportunities for those with scores underneath that value, but the interest rates charged will be significantly higher for this demographic.
Income and Assets Under the Microscope: Prior to the mortgage meltdown, paper proof of both income and assets were enough to secure a mortgage. Lenders are now taking the time to verify the information by making phone calls and triple checking all paperwork submitted.
Pregnancy: Being pregnant is not a legal path to discrimination, but the New York Times reported that maternity and paternity leave might be seen as a potential "loss of income." Technically, this type of interference should be categorized under "Income and Assets Under the Microscope."
Home Appraisals: Thanks to the crop of under water properties, mortgage lenders are ordering stricter reviews of submitted home appraisals. Homes that do not appraise for the full contract price are subject to disapproval.
Mortgage Industry Shake Up: Prior to the real estate bubble bursting, mortgage offers with enticing promotional rates were abundant and easy to secure. Right now, the industry is in flux as it attempts to clean up the mess and get business back on track. However, the guidelines are evolving everyday, creating a challenge for lenders regarding instructions on the mortgage approval process. Additionally Congress introduced new regulations to limit the power of predatory lenders, and the blanket laws are negatively impacting small business owners and independent contractors in the mortgage industry.
Tighter Condo Approval Rules: Although condo living can provide a fantastic quality of life, those interested in financing purchase of a unit should expect challenges in the mortgage approval process. Typically, condos are considered to be a riskier type of home purchases and are charged slightly higher mortgage interest rates than single-family home purchases. The reason why, condos have a community behind them and the finances of the community (as well as the buyer) are being analyzed more intensely by mortgage lenders.