Standard Lending Practices Tightening
If you’ve been shopping for a home loan recently, you may have noticed it seems to be a little tougher out there. For one thing, foreclosures have been on the rise across the country. This makes mortgage lenders rather skittish. They begin to more carefully scrutinize their borrowers. It’s a cycle we in the mortgage business have seen repeat itself down through the years. When money and houses are plentiful, the lenders relax their standards somewhat, and allow riskier loans into their portfolios. After a while some of those risky loans come back to haunt the lenders through the foreclosure process. In response, the lenders tighten their standards for mortgage loans. If they give out too many loans that end up in foreclosure, they go out of business. That is just what has happened to the “B” and “C” lenders, and a few of the “A” paper lenders, as well. Everyone else then starts rethinking their loan programs and cutting out the ones which they’re no longer comfortable offering. This is done in an effort to keep the government from stepping in with new regulations. As it is, the Fed is already considering more stringent disclosure requirements and underwriting guidelines.
What does this mean for you the borrower? Some programs have already pretty much disappeared. Your credit score is going to be much more closely reviewed. Your payment history will be checked for 24 months instead of the 12 months previously required. Self-employed borrowers data will be scrutinized more closely and compared to how much others in same field earn on average. Married couples may find it harder to get a loan as instead of accepting the higher credit score of one spouse, they may insist on going with the lower credit score of the two, in qualifying for the loan. Mortgage companies are beginning to be more critical of the appraised value. They may require a second appraisal, and use only the value of the lower appraisal in approving the loan. All this is in an effort to weed out loans that might become problematical for them. The result is you may have to work a little harder for a loan, and some may have to go back and clean up credit problems in order to qualify now for a mortgage. What can you do about it? Remember this is part of the normal lending cycle. Keep improving your credit by paying down debt. Keep looking for the right product for your situation, and make sure you have your paperwork in order, so when you do find the right lender and program, you’ll be ready.
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