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Lending Standards Continue to Tighten
Despite falling interest rates, loans will still be hard to come by
By Shannon Petrie, FrontDoor.com | Published: 9/12/2008
The federal takeover of Fannie Mae and Freddie Mac came with some good news for borrowers: rates of 30-year fixed rate mortgages fell from 6.35 percent to 5.93 percent in a week, and credit will become more available.
However, with foreclosures and delinquency rates rising to record highs, lending standards will continue to tighten, making it harder to qualify for a loan.
Some higher standards buyers should expect to encounter:
- Higher credit card scores. Lenders are demanding credit scores of at least 700 from borrowers, up from the previously acceptable score of 620.
- More money down. Say goodbye to no-down-payment loans. Five percent is now the bare minimum for borrowers with excellent credit, while others with less-than-perfect credit can expect to put anywhere from 10 to 30 percent down.
- Higher surcharges. Borrowers with lower credit scores and less money available for a down payment will have to pay additional charges.
- Less Alt-A loans available. While stated-income loans, interest-only loans and other non-traditional loans are still available, increased credit score and down payment requirements make them unaffordable for most buyers.
These tighter standards mean that new loans are less likely to fail, but the number of homebuyers who qualify will be drastically limited.
If you don't think you have quite what it takes to qualify for a loan right now, take some time to improve your credit score and pull together the cash for a sizeable down payment. And when a lender says "no" to your mortgage application, try these options.
Read the Top 10 Real Estate Trends You Have to Know:
- Homes in foreclosure reach record highs
- Home prices continue to fall
- It's harder to get a mortgage
- Bad real estate agents will get weeded out
- Mortgage rates are still at historic lows
- Urban areas are making a comeback
- Bigger is not always better
- Buyers are going green
- Technology and social networking are changing how we buy and sell homes
- Flipping is out, buying and holding is in
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