Is it Still Difficult to Get a Mortgage?

Borrowers still face a fight for the house keys.

Borrowers still face a fight for the house keys.

Many with dreams of owning a home are finding the path to homeownership a not so easy road to navigate after the 2007 subprime mortgage crisis. With lenders wary of offering a mortgage to anyone with anything but the most stellar of credit and employment histories, hopeful applicants may be met with a few hurdles before their dream becomes reality.

Mortgage Crisis

The housing market was already in deep water when the mortgage crisis hit. The housing market had slowed down, leaving lenders holding the bag for defaulted loans and an increasing number of homeowners facing foreclosure and plummeting home values. Lenders' lax practices, including approving borrowers with little to no proof of income or employment, contributed to the collapse of the housing market and to the overall recession.

Lender Apprehension

As a consequence of the mortgage bubble, lenders have tightened lending standards. For new loans closed in August 2012, the average FICO score was 750 according to Kenneth R. Harney, writer of the award winning syndicated column "Nation's Housing." In fact, only one in five consumers have FICO scores above 750, according to the developer of the scoring system, Fair Isaac Corp. Borrowers with a credit score from 680 to 720 were less likely to be approved for a mortgage in 2012 than in 2006, and that’s with a sizable down payment of between 10 and 20 percent.

Requirements

While lending has tightened, those seeking a mortgage shouldn’t be scared off. With a credit score of 720 and 10 percent down the chances of securing a mortgage loan increased, according to an April 30, 2012, report in "The Wall Street Journal." Tack on a larger down payment and the chances of approval increase. In addition to increased credit score requirements, lenders now require solid documentation of employment and income. And don’t be surprised if you’re asked to explain even small missteps on your credit report.

Considerations

Knowledge and preparation is the rule, not the exception, in today’s mortgage loan process. Review your credit report and correct any errors that may affect your credit score. AnnualCreditReport.com offers consumers a free annual credit report from each of the three credit bureaus. If you find your credit score to be a hindrance to loan approval, take some steps to improve it. FICO suggests reducing the amount of debt you owe, staying current on payments and refraining from opening new accounts.

 

About the Author

Nicole Long is a freelance writer based in Cincinnati, Ohio. With experience in management and customer service, business is a primary focus of her writing. Long also has education and experience in the fields of sports medicine, first aid and coaching. She earned her Bachelor of Arts degree in economics from the University of Cincinnati.

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