Times change, and we change with them,” noted William Harrison, ninth President of the United States.
Since the recent economic downturn, it’s no secret that the mortgage industry has continuously evolved with stricter lending guidelines. “Applying for a mortgage loan is definitely more tedious, with more paperwork involved and more disclosures,” explains Mark Cooper, branch manager at USA Mortgage. “But I wouldn’t describe it as more difficult to get a loan. The difference between now versus two to two-and-a-half years ago is that lenders are verifying applicants’ income, assets and credit worthiness. Before, clients could just simply state their income and assets.”
Cooper adds that credit ‘worthiness’ is mostly based on borrowers’ credit scores. “Most important is the client’s credit and how it stands,” he continues. “We are still doing loans for as little as 3 percent down with a minimum credit score of 620, but to get the best rates possible, 740 or higher is the magic score. Second homes do require a minimum of 10 percent down.”
Mark Unangst, senior VP at Gershman Mortgage, agrees that a person’s credit score is the biggest factor when applying for a mortgage loan. “The difference between now and more than two years ago is that FHA, Fannie Mae and Freddie Mac did not have a minimum credit score requirement.” Unangst says, “Since the meltdown in the marketplace, investors have become very picky as to what they put into their securities.”
Equally relevant, Unangst adds that “it’s important for everyone to know their credit score and to track it. The higher the loan-to-value ratio, the higher the credit score needs to be,” he explains. “Three major credit bureaus have secret formulas to compute borrowers’ scores. We don’t know all the factors that go into a credit report, but we do believe they look at credit, public records, outstanding debts and how people have paid on those debts. They also look at inquiries (any instance when a person’s credit is checked), which is important if somebody has a lot of inquiries—it can go against them.”
Cooper advocates preapproval, considering it an essential step prior to a real estate search. “It’s important to get preapproved if you’re worried about how much you qualify for and if you’re going to qualify,” he notes. “Rather than be nervous and hide behind some past credit issues, the best thing to do is to get preapproved—there’s no cost to do it, at least for most companies—and there’s plenty of options available now that the lenders are offering to repair and improve credit. After we run a credit report, we counsel the client, if needed, in an effort to improve the score. We look at what needs to be paid on time, paid down or paid off.”
Preapproval also makes sense to Unangst. “We do a preliminary review of a client’s credit, application and their employment, and make sure they qualify,” he says. “It gives them a maximum loan amount, and in the process, they find out what their credit score is. If for some reason they don’t want to go through the preapproval process, then I would at least recommend they find out what their credit score is. That way, if they have any credit issues, they can get those matters satisfied.”