The Aftermath Of The Housing Bubble

In the early 2000’s, mortgages were very easy to obtain, almost too easy in many cases, and this is one factor that ultimately lead to the bursting of the housing bubble.  Five or ten years ago, high risk borrowers could potentially obtain loans with minimal down payments and less than perfect credit, and while these loans were helpful at first, all it took was one or two missed payments to start a downward spiral, eventually leading to foreclosure.

In today’s lending world, however, there has been a complete turnaround when it comes to qualifying potential borrowers, such a big turnaround, in fact, that many hopeful borrowers are completely surprised by the rigorous application process that now goes along with obtaining a mortgage, due to new Federal regulations that lenders must stand by.

Here are a few roadblocks you may come across when applying for a mortgage in today’s post housing crisis world, and some tips on what you can do to ensure approval.

Down Payments

While qualifying for a loan without a down payment is still possible in certain cases, it is definitely not the norm anymore.  If you are looking to obtain a loan with a low or no down payment, there are a few options.  There are a few loan programs that are backed by the Dept. of Veterans Affairs that allow qualified borrowers that meet specific guidelines the option for a loan with no down payment, and FHA loans are still allowing for low down payments.  However, FHA loans used to allow for down payments of 3 percent or less, and now the minimum percentage has moved up to 3.5.

Debt-to-Income Ratio

Five to ten years ago, many families could qualify for a mortgage with a 60 or 70 percent dent-to-income ratio.  In today’s world, the standard is approximately 43 percent.  There are various factors that contribute to this that include the current economy and job market, and lenders simply do not want to take the risk that borrowers will be using their funds to take care of additional debt instead of paying their mortgage on time.  Additionally, today’s lenders will investigate further when it comes to borrower’s employment.  They will inquire about overtime as well as length of employment in order to get a true picture of what a borrower can afford, and this can definitely be a roadblock to those who have recently started working again after a lengthy bout of unemployment.

Proper Documentation

If you are hoping to obtain an affordable mortgage loan, you will want to make sure you have all the proper documentation in order before starting the application process.  Documentation you will need includes bank statements, tax returns, and social security information.  Lenders have an obligation to thoroughly review these documents as well as compare notes with the IRS, so it is important to have all your ducks in a row before getting started. It is also important to note that when the lenders compare bank statements to income statements, they will expect a full explanation of any extra money that is not coming directly from an employment check, so it is always a good idea to keep your receipts, especially if you do contract work in addition to your regular job.

Credit Score Requirements

At one point in time, a mortgage could easily be obtained with a credit score of 580 or higher.  Today’s rules typically require at least a 620 score, and that is on the low end.  The average credit score that is preferred now is between 720 and 765.  If your credit score is currently on the low end, you may wish to hold off on applying for a mortgage until some of your debt is paid off and you have increased your score.  Not only will this better your chances of qualifying, it will also help eliminate excess monthly debt that you can put toward your mortgage payments.

New Mortgage Lending Standards

While today’s mortgage application process can be a bit frustrating for potential borrowers, the reality is that something had to be done in the wake of the economic collapse and housing crisis.  Not only were risky borrowers defaulting on their mortgages, hard working individuals were losing their jobs and ending up in default as well.

With the newer standards, there is definitely hope for more stability in the mortgage market.  Potential borrowers now need to take a realistic look at their finances and overall ability to pay, and lenders are cracking down in order to keep the market in check.  While the detailed application and approval process may annoy seasoned borrowers, borrowers that are new to the home buying process will definitely benefit from the changes.

A high credit score and verifiable income assures lenders that these mortgages will not go into default, and potential home buyers will be able to obtain mortgages with confidence and the peace of mind that they can realistically cover their payments each month, allowing for a win-win situation for both lender and borrower.

5 Tips on Improving Your Credit Score Fast

In today’s world, a good credit score is extremely important. Whether you are looking to obtain a mortgage loan or simply apply for apartment tenancy, your credit score is almost always considered, and the decision between granting and denying credit often depends greatly on this number. If you are Hoping to obtain credit for anything in the near future and your credit score is less than perfect, here are some ways to boost your credit score fast.

1. Obtain a Copy of Your Credit Report

Legally, you are allowed to receive your credit report free of charge once every four months. It is always a good idea to obtain your credit report from all three agencies (Equifax, Experian, and Transunion), as there may be contradicting information on one or more reports. You can obtain your report online, and you can also contact the companies in writing. Once you have your up to date reports, you can carefully analyze your scores and get started on boosting your scores. It is important to note that if you do notice any errors or discrepancies, these can easily be fixed by contacting the credit reporting agency and reporting the issue.

2. Pay Your Bills on Time

Paying your monthly bills (gas, water, electric, home phone) on time will help to raise your credit score, and it will also reflect positively on your report. When a lender sees that you stay on top of your monthly obligations as well as keep a decent score, they will be more apt to approve your credit request. Additionally, keeping up with your monthly bills will help you stay away from the dreaded late charges that are typically tacked onto late utility and phone payments.

3. Apply for Additional Credit Cards

You can also boost your credit score by obtaining additional credit cards. It is important to note that you must pay the full balance on a monthly basis in order for your score to improve, and you can do this easily by making minimal purchases and paying them off either early or by the due date. If you are having trouble being approved for a credit card, a company like The Credit Geeks can help get your score back to a respectable level for you to be approved again.

4. Limit Your Credit Spending Limit

One way that a credit score is equated is by calculating the specific amount of credit used when compared to the total amount of credit available. A good rule of thumb is to only spend 30% or less of your available credit, as this shows the lenders and creditors that you are not maxing your card out every month.

5. Apply for a Secured Credit Card

If you are looking to build your credit fast and do not have the option of obtaining an unsecured credit card, you can always apply for a secured card. Keep in mind that by taking this route, your credit score won’t immediately skyrocket, but secured credit cards are a great way for individuals that have had credit issues in the past or individuals with little credit to build their score and start a good track record of making timely payments.

Boost Your Score, Become Eligible for More Credit

The truth of the matter is that a good credit score means a lot in today’s economy. Aside from obtaining loans and credit, your credit score may even be considered when applying for employment or leasing an apartment. By obtaining current copies of your credit report and working hard to fix any issues that are keeping your score down, eventually you will build up your score and become eligible for a variety of credit offers, allowing for a secure financial future.