Getting a Mortgage In Today's Economic Environment

The mortgage market today looks a lot different than in did ten years ago. Many of the risky mortgage products that swamped the market from 2000 to 2006 are now being blamed for much of the financial pain we face today.

Plan Ahead

Getting a mortgage is a process and you need to plan ahead. You should have a complete understanding of the documentation requirements, your credit history and minimum down payment needed. This means being ready to furnish income and asset documentation to support what is on your application. This might include your most recent pay stubs and bank statements, W-2s for the previous two years, and tax returns.

How to Get the Best Rates

If you want the best interest rates and the lowest costs, you'll need an excellent credit score, usually 720 or higher with a 20% down payment. If you can't meet these tighter lending requirements then next best thing is an FHA loan. FHA is a federal agency that insures mortgage loans against default. Most lenders are requiring that you have a 620 credit score with a 3.5% down payment to get a FHA mortgage loan. This benchmark has recently changed from a middle credit score of 580 to a 620 with most lenders.

For mortgage approval, there is no single cutoff score that applies across the board. Every mortgage company has its own standards of what they are willing to approve and how they interpret risk. Lenders will also consider other factors in addition to your credit score, such as your employment and salary, your savings and your debt-to-income ratio. To ensure that your credit score is as strong as possible, you should check your credit report for any errors or inaccuracies at least 3-4 months before loan shopping.

Debt-to-Income

When you apply for a loan, the lender will also check your debt-to-income (DTI) ratio. This is the amount of your monthly income that goes toward your various debt payments. Every lender has its own standards, but 30% is a good rule of thumb.

Just a few years ago, 100% financing was common and you probably wouldn't have needed a down payment at all. But this is no longer the case. To qualify for 100% financing today, you'll have to qualify for either VA or USDA loans from the government. The Veteran's Administration (VA) and the US Department of Agriculture (USDA) have special programs that allow 100% financing for those who qualify.

Remember, before you apply for a home loan make sure your credit score is as high as possible. The Complete System to Repair Your Credit and Boost Your Credit Score will help you get your credit in shape. Download Today!