Reality Bites: The Truth About Today's Mortgages

By Michael G. MacKenzie, December 3, 2007
Executive Analyst, Community Acceptance Mortgage

With prices declining and supply ballooning, now is a great time to buy a home. However, lenders are scrutinizing borrowers much more carefully these days, and even with good credit, gainful employment and cash in the bank for a down payment, applying for a mortgage is more challenging today than it was just a few short months ago. Here are a few ways to position yourself for approval, and for a great mortgage rate to boot!

Get a Credit Makeover. Some sins, such as unpaid tax bills, late payments or "past dues" remain on your credit report for several years, even after you've paid them off. But by reducing credit card balances (to 45% or less of the available credit,) paying off any overdue amounts and reducing the number of credit cards, you can improve your score dramatically in a relatively short period of time. Major credit restoration may require the services of a credit repair specialist.

Put Up or Shut Up! The more money you put down, the better your chances of securing a loan and the better the rate you will be eligible for. These days if you don't have at least 15 to 20% of the purchase price, you may not even qualify for a loan with many institutions.

Show me the money! In the not-so-distant past, most lenders didn't require you to provide proof of income. Now, you must be prepared to show your W-2 forms and, if you're self-employed, you will need to produce several years' tax returns. Proof of business ownership and asset verification are also part of today's standard operating procedures.

Keep it real! Make sure you have money left over Stay within your budget. Don't even allow your real estate agent to show you properties that are outside of your range. When getting pre-approved for your home loan, look for a mortgage specialist that offers options based on how much home you can actually afford. Your downside risk increases proportionately with the amount you pay and conforming loans (loans under $417,000) are easier to sell and easier to approve. Be sure to keep money aside for other investments and emergencies.

Moral of the story… When setting out to negotiate a mortgage loan in today's market take advantage of these simple strategies and reap the benefits in the years to come.

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