Mortgage Qualification Today
Getting approved for a mortgage today is much tougher than it used to be 6 months ago. With the economic crisis still dragging out in the housing market, many homeowners are finding it increasingly difficult to get approved for financing.
According to a survey conducted by the federal government, nearly half of the major banks had tightened their prime lending mortgage guidelines in the last 3 months alone.. Now in many cases if a person wants to get a mortgage, or refinance the current mortgage, they will have to pass more stringent guidelines.
Mortgage pre qualification process
That means that the banks will only consider those who have the highest credit scores, highest income in relation to debt, and the highest value in home equity. So in order to be able to qualify for a loan, you will have to be an “AAA” credit worthy client in their eyes.This doesn’t mean you can’t get a mortgage with bad credit, it simply means that those with lower credit scores and lower incomes will be subjected to higher interest rates as opposed to the more ‘financial secure clients .
A borrower today would need to have a 700 plus credit score , would have to owe less than 40% of his total net worth, and have approximately 50-60% loan to value or more. The banks will essentially use what is called a Loan Level Pricing Adjustment to determine the interest rate a client will have to pay. That must seem pretty far reaching for alot of us and many may feel discouraged by this.
But it seems this has also been affecting home owners that fit the AAA criteria, yet have not been able to get the lowest mortgage rates either in many cases. This is mainly due to FICO and home equity.
“Non prime” borrowers such as jumbo mortgage owners are also being affected by the tightening guidelines lenders are imposing. These loans are too big for the prime market so therefore pose a higher risk to banks who choose to do these kind of mortgages. This has resulted in banks doing less jumbo mortgages which has brought the rates down. However even with lower interest rates, less people will qualify for jumbo mortgages just the same.
However there is a glimmer of hope in the world of mortgage and financial forecasting it seems. Some banks have been slowly loosening their guidlines at little and others have slowed down the process of tightening their guidelines somewhat that may possibly encourage a little economic stimulation.
So the mortgage rates will most likely drop again for a little while, but don’t expect to see it drop to 4% , that opportunity is likely gone forever, but at least there is a good chance to refinance at much lower rate if you time it right.
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