With almost two-thirds of U.S. banks having raised their standards for mortgages to their most creditworthy borrowers, three-fourths of U.S. Banks made it more difficult for people with limited or bad credit to get loans.
According to a June 11 report by the Washington-based Mortgage Bankers Association, eighteen percent fewer mortgages will be written this year compared with last.
However obtaining a mortgage is not impossible.
Mortgage lenders are interested in traditional mortgage buyers who can document their income and assets and don't have sizable debts relative to their income. Potential buyers can no longer put 10 percent down. Most banks are asking for 15 to 20 percent, or even more. 80 is now the new 90! And mortgage lenders are closely looking at factors such as:
A borrower's credit score - aka FICO score, is a chief determinant of eligibility for loans. Most applicants now need a score no higher than 660, whereas some lenders are not willing to go below 720.
This is the percentage of a borrower's income that goes toward paying debt. Lenders calculate it two ways: By the front-end ratio, which includes housing costs like the mortgage principal and interest, mortgage insurance premium, if applicable, and property taxes. And the back-end ratio which includes any other debts like car or student loans, credit cards and alimony. Before mortgage companies accepted applicants with debt-to-income ratios as high as 55 percent. Now the maximum is in the mid-40s. And a borrower's credit card limit counts as actual debt, regardless of whether the card is even used.
Lenders are no longer willing to settle for stated income, without document verification, preferring instead that applicants provide all the necessary paperwork to prove income.
Banks require borrowers to have a certain amount of money readily available - equal to 3 months to 36 months of payments, depending on the lender to cover mortgage and insurance.
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Weeks of 5/19/08 - 6/9/08