How Hard Is It to Get a Mortgage?

Written by laura lemay
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How Hard Is It to Get a Mortgage?
Plan now to get the best mortgage rate for your needs. (home sweet home image by David Dorner from Fotolia.com)

Obtaining a mortgage requires excellent credit and a substantial down payment. Consider reviewing your credit reports prior to applying for a mortgage. Many credit reports have errors or duplications. Report and request corrections according to the Fair Credit Reporting Act. Accurately presenting your credit may mean getting the mortgage program you want and saving money.

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Identification

Credit risk, or the likelihood and ability to repay debt, is carefully assessed prior to mortgage loan approval. Your FICO score is often referenced as a quick measure of the potential risk to a mortgage lender. Developed in the 1950s by the Fair Isaac Corporation, FICO score helps lenders determine your ability to repay significant debt.

In 2010 the Federal Trade Commission cracked down on widely offered "free credit report" services. Consumers may obtain a free annual copy of their credit report from Equifax, Experian, and TransUnion. Request your free credit report directly from the reporting agencies before submitting a mortgage application.

Types

According to Guy Cecala, Publisher of "Inside Mortgage Finance," two government-supported enterprises--Fannie Mae, The Federal National Mortgage Association, and Freddie Mac, The Federal Home Loan Mortgage Corporation--dominate the mortgage market. The two organisations represent 60 per cent of the mortgage market. Fannie Mae, Freddie Mac and almost all mortgage lenders and guarantors require excellent credit scores and substantial down payments. Fewer debtors with substantial down payments walk away from their homes.

Jumbo mortgage loans are not offered by a government agency lender. Jumbo loans exceed the maximum amounts at which Fannie Mae and Freddie Mac repurchase loans (approximately £271,050 in most states). These loans are not readily resold and must remain in the lender's portfolio. Most jumbo lenders require high credit scores (FICO scores of 760 to 800) and 30 per cent of the home purchase price to qualify.

The U.S. Veteran's Administration offers zero-per cent mortgage loans to qualified veterans.

Solutions

For some borrowers, Private Mortgage Insurance (PMI) programs can help get the mortgage loan necessary to finance a home. PMI programs focus on the borrower with at least 10 per cent down. Borrowers should have excellent credit scores and a reliable source of income for at least two years prior.

Considerations

Minimum requirements for a mortgage in October 2010 include 20 to 25 per cent per cent as a down payment, a 730-plus FICO score and two years of qualified earnings. Plan to submit financial statements and the past two years' tax returns. Lenders want to know if their mortgagors have sufficient resources and financial stability. Individuals with fluctuating or irregular incomes may have a more difficult time obtaining a mortgage.

Potential

Depressed home prices in many markets make buying a home a potentially attractive investment opportunity.

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