Many buyers worry about one thing when it comes to a mortgage - the rate - and they pay little attention to mortgage guidelines. But in these market conditions, mortgage rates should be no higher than number 2, if not number 3 on the "worry list" with mortgage guidelines being number 1.
Why? Because mortgage guidelines dictate whether you qualify for a mortgage in the first place, regardless of the rate. If you can't qualify, then the rate doesn't matter. Private lenders, as well as the FHA, are getting more strict on their guidelines every day.
Here are some examples of how guidelines are tigthening up:
- A few years ago, you needed a minimum of 620 score to qualify for a "prime" or "A-paper" loan. Now, most lenders require a 720 or higher
- Rather than one month's cash reserves, most lenders are now requiring 3 to 6 month's reserves
- The amount of the down payment required by the lender has gone from none or 3 percent to a minimum of 10, if not 20 percent
- "No-Doc" loans are a thing of the past. Now you have to have all your paperwork and records for several years back otherwise the lender won't even touch you
- Banks are going belly-up left and right and the ones that are still standing and healthy (only a few left) are making it even more strict to get financing.
There's an excellent video you should check out by Dan Green over at The Mortgage Reports explaining mortgage guidelines and why they're becoming more strict. Click here to check out the video
As you can see, it's about much more than just rates these days. And as more banks go up in flames and credit gets tougher to get, these guidelines will get more strict. So rather than watching rates, watch mortgage guidlelines.
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