Shopping for a Mortgage in Today's Market

Here is a paraphrase of an article about shopping for a mortgage from the September 2007 Kiplinger's magazine, by Patricia Mertz Esswein:

Although subprime mortgage troubles are affecting all borrowers, people with not so good credit will undergo the toughest underwriting.

1. First-time buyers who are stretching to make a mortgage will have the most difficulty obtaining a mortgage.
2. If your credit score is below 700, loan options such as an 80/20 piggyback loan (80% first mortgage and 20% second) will become scarcer.  These borrowers may get 100% financing with PMI, but those with credit scores under 620 will probably not be able to get 100% financing.
3. Try to put at least 5% down, with at least two months of PITI (principal, interest, taxes, and insurance) in reserve. 
4. Most traditional lenders use a standard debt-to-income ratio of 28/36, in which your monthly mortgage payment must not be greater than 28% of your monthly household income, and your total debt payments cannot be more than 36% of your income.  It's possible that these percentages could come down.
5. It is probably a good idea to improve your credit score before buying, because you could save thousands in mortgage payments every year.  You should check your credit report at least six months before applying for a mortgage, file any appropriate complaints to get any errors corrected, and take action to improve your score.
6. Different experts forecast different end-of -the-year average fixed mortgage rates. You can use an online mortgage calculator to see how various down payments and interest rates will affect your monthly payment.
7. Lenders may start requiring more thorough appraisals, such as a full interior and exterior inspection and measurements, instead of just a "drive-by" appraisal.  Sometimes lenders may even require two appraisals!  It's possible that a home's value may be scrutinized more if there is a smaller down payment.   Be sure your agent does a careful CMA (comparative market analysis) of recently sold properties so that you can make a realistic offer.  Also, be sure an appraisal contingency is included in your offer so that you can get your earnest money back if the property fails to appraise and the seller won't come down to the appraised value.

Hope this was helpful information for you-I know it was for me!