Mortgage approvals are getting harder and harder to come by…even for the previous “good” borrower.

Lenders and the automated approval systems they use to approve borrowers underwent a major overhaul this month. On first blush one might think this was a knee-jerk reaction to the credit crunch, but there is more on deeper inspection. I also suspect that this is only the first salvo in an increasing tightening of mortgage lender standards across the board.

What Counts More Now

Many factors “count” but some will count more and now is the time to reset borrower expectations since they have been perverted over the last decade with a horribly lax standard. Knowing these “new” factors and improving what you can will make your approval if not a certainty…a high probability.

High on the list are credit and cash…big surprise, eh?

Back To Basics

The most important factor from the past now getting new life is the credit worthiness of the borrowers. Yep…this is a big one.

Fannie Mae has yet to say if there will be a “credit score cutoff”, but my guess is from now on without at least a 680-700 credit score, you can forget conventional loans. FHA loan programs may still be a possibility, but with the low loan limits many in the country (i.e. California, New York, Virginia, etc.) simply can use FHA programs until they increase their limits.

and check you have at least the minimum scores necessary before getting to far down the road on a refinance or purchase.

Credit Score Enhancement Tips

Your mortgage approval depends on a obtaining your best credit score, so let’s investigate ways to enhance your score.

Pay down (don’t pay off) all credit card balances to achieve no more than 50% of the available credit limit used. If you have a credit card with a $10,000 limit, never carry a balance greater than $5,000. If the balance is currently $5,500, then pay off at least $500 to get it down. If you had another card with tons of available credit, get the $500 from that card. Keep doing this “balance shifting” until all of your cards slide in under the 50% cap.

Next, if you are just making the “minimum payment”….STOP! Make the minimum payment plus an additional 20%. Anybody can do this and it will improve your credit score if practiced religiously in just a few months.

Lastly, never payoff long standing open credit cards or lines of credit with great payment histories. These “seasoned” lines of open credit are responsible for the good credit score you have. Eliminating them by closing the account is plain stupid and I hear mortgage and real estate folks giving out this bad advice everyday.

Cash Is Still King

A sizable down payment will improve your approval chances under the new guidelines. If your credit score is on the low side, ground can be made up with a bigger down payment. Under the old guidelines, simply splitting up the mortgage into two loans or using mortgage insurance, would achieve the same “underwriter risk” as a large down payment. Those days are gone. The new lender guidelines are not going to simply look at their own exposure, but the total exposure. Folks with no down payment are simply riskier than those with a respectable down payment.

There is no simply way to accumulate cash…if I could tell you that, I wouldn’t. I’d simply retire to my island. What I can say is as boring as it is truthful…budget, save, invest and be patient. Do you really need a $5 cup of coffee every morning if it means you can’t be a home owner someday?

Liar, Liar, Pants on Fire

Don’t lie to your mortgage provider. They are NOT going to turn a blind eye like before. They will find out your lie and you be totally screwed. Be brutally honest with your mortgage provider and if they are a pro, they’ll bend over backwards to help you.

Finding that “Pro” mortgage provider is harder than ever. It seems that all the “good ones” are taking this downturn as a signal to retire. However, if you’d like to learn simply the fastest, best way to locate an ethical, local, mortgage provider…check out our Free Tools.

Good Luck!

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