Obtaining a Mortgage Following the Real Estate Crisis

August 2, 2011 | By: mbeharry

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This article was created by Lance Surety Bond Associates, a nationwide surety bond company who provide mortgage broker bonds.

Although it has been about five years since the housing market’s collapse, the real estate market has yet to make a comeback. From 2003 to 2007, mortgages were handed out with little documentation; borrowers simply noted their income and signed away. Because of this, loans were given to those who were unqualified, and eventually couldn’t afford them. Shortly following, the housing market deteriorated.

In the wake of the mortgage wreckage, lending requirements have become increasingly stringent. Individuals are expected to have higher down payments and near perfect credit scores; the minimum acceptable score has increased to 762, up about 40 points from 2006.

These lending standards can fluctuate weekly making it nearly impossible for those interested in purchasing their first home to know how to prepare. Although the guidelines may be unclear, there are several areas prospective homebuyers can control to help their chances of getting pre-approved:

1) Run your numbers. By tracking where your money goes each month, you’ll be able to forecast how much you can commit to a mortgage payment monthly. There are several free financial software programs that help individuals manage their monthly spending and credit scores. These services alert users of high spending or late credit payments, making money management that much easier.

2) Strengthen your score. Ensure your credit is high enough for approval; if not focus on increasing it by paying down debt aggressively. Remember that each credit inquiry impacts your score. If many lenders are pulling your credit history, your score will be negatively affected and you may end up with a score under the minimum pre-approval requirements.

3) Understand your financing limitations. Most financial counselors recommend spending between 28 to 30 percent for your mortgage payment, interest and taxes. There are several online calculators that can help you estimate what you’re able to afford.

4) Shop around. Talk to your bank and several brokers for an idea of what type of financing you are eligible to receive. Determine how interest rates and discount points can influence your monthly payment.

5) Calculate your down payment. Many lenders do not approve mortgages without 20 percent down of the cost of the purchase price. For those who can only afford a smaller down payment, there are other financing options, but they usually incur additional insurance fees; these can be an additional $300 to $600 per month.

6) Be patient. Although the real estate market has not entirely recovered, some experts expect loan requirements to stabilize. A stable real estate market would bring a clearer understanding on what is necessary to obtain a mortgage.