The Scoop on Tighter Loan Standards

I regret the amount of time that has passed since my last post. The good news is that real estate activity is increasing right now, so things have been busy. More homes are starting to sell and fewer new listings are coming on the market. A great recipe for a strong market this summer and fall! I'm sure you have heard the news regarding the fallout from some of the creative financing and low interest loans that were so popular recently. If not, here's the scoop...lenders who have offered creative packages to buyers in the past, such as low adjustable rate mortgages, 100% financing, stated income loans, interest only loans, etc. are experiencing more and more foreclosures recently due to the changing market, the economy, and other related factors. Here is an article that may help today's buyers understand the current loan standards...

Daily Real Estate News | May 29, 2007
Tighter Lending Rules Keep Some Buyers Out
Mortgage lenders are tightening standards in ways that can make it much more difficult for potential borrowers to get approval for loans.

The new standards fall into the following areas, according to Wells Fargo & Co. and other large lenders:

Ability to repay. Buyers are no longer being qualified at the low initial rate. They must qualify for the loan payments at rates equal to what the loan would be if it reset at a higher rate.
Down payment. Lenders want buyers to put some money down, even as little as 5 percent or 10 percent. Loans for 100 percent of the price are very hard to get.
Credit score. Credit scores range from the high 300s to the low 800s. Borrowers with a credit score above 680 are likely to qualify for a reasonable deal. Between 660 and 680, they may qualify, but the deal could be pricey. Potential borrowers with a score of 620 or less need to raise their scores before they can qualify.
Income and income verification. Producing proof that a borrower has a job is key; “stated income” loans are much more difficult to get. Also lenders are unlikely to approve a loan in which the home buyer will spend more than 45 percent of his gross income paying off debt, including paying the mortgage.

Source: The San Francisco Chronicle, Carolyn Said (05/26/07)


If you would like more information about the different types of loans available and getting pre-qualified, I have some great local lenders that I work with on a regular basis. I would be happy to refer you to a qualified professional so you can get started on the right foot!