This is an expansion of an earlier post by Gary S. Thomas of CCB Mortgage:

Getting a home loan just got harder. As some lenders have collapsed under the weight of bad mortgages, others are getting pickier. Now you have to have a real down payment and actually be able to afford the house. With the news full of stories about the collapse of lenders that sell mortgages to people with less than perfect credit, the survivors are clamping down, leaving first-time homebuyers to wonder, “ Will I still be able to buy a house?” The short answer, of course, is that it depends.

The prime people will still be able to get loans. You’ll just have to a have a down payment, documentation and a higher credit rating. You can still obtain loans with no down payment, however, your clients will have to have a higher credit score then before. It’s the marginal people going for the subprime, low-doc loans who’ll feel the change. They will be asked for more documentation, and the appraisal will require a tighter review.

A FICO score above 620 and a stable income will likely be a prime or conventional loan customer. Factors like debt and how much you want to borrow also enter the equation. If your clients have a 5 or 3 percent down payment they should be able to borrow easily and at a low rate. If their FICO score is below 620, you may still get a loan, but it’s likely to be an expensive subprime product.

Until early 2006, the overheated lending market was pumping out money. Brokers competed to sell mortgages. Loans covering 100% of a home’s purchase price were common, with up to 6% seller’s concessions. Borrowers, even with badly damaged credit, were breezing into lender’s offices and emerging with loans that sometimes even locked them into paying more than they earned. Now it’s back to more of the old fashioned rules. With less money available, and fewer buyers and lots of houses for sale, lenders are requiring more documents detailing finances and income.

The biggest changes are: a sharp reduction in “no-doc” loans, a big reduction in 100% financing, and the return to traditional standards in qualifying borrowers. Subprime products won’t completely disappear but the range and availability will shrink. No-documentation loans will be considerably harder to find. Both Freddie Mac and Fannie Mae have cracked down on the use of low documentation products.

The foreclosure rates and the number of people who are behind on their mortgage payments are at an all time high. This will continue for the next two or three years. This will present opportunities for some of us and cause a headache for the rest of us. In the last two years fully 21 % of all home mortgages were deemed subprime. This will slip to as low as 5% in 2007.

It’s more important that ever to get pre-approved by a mortgage expert who is up to date on all the mortgage products and their guidelines. The guidelines are changing every day. The pre-approval letters that you received thirty days ago may not be accurate. Double check with your qualified lender for an up date, if you do not receive status reports on a weekly basis.

Gary S. Thomas, CCB Mortgage expert – (717) 880-7678 and on the web

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