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Home loans harder to obtain, but opportunities still exist

Posted September 23, 2009

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— Christine St. Louis and her fiancé, Pete Lemiere, made the leap to become first-time homeowners this year.

They bought a house with features on their wish list – a cathedral ceiling and a fireplace – but they had to jump through more lending hoops than they would have a year ago.

“(We were) not sure if things were going to work out," Lemiere said.

"It was nerve-wracking,” St. Louis added.

Glenn Astolfi, a mortgage broker with DNJ Mortgage, said more paperwork is needed now to secure a home loan – more tax returns, more job history and more proof that potential buyers can afford the property.

“Compared to a year ago, loans are more difficult to obtain, but they can still be done,” he said.

The sub-prime meltdown began with reckless lenders who looked the other way on credit scores and buyers’ long-term ability to pay.

“I think there was a segment of the population probably that was getting an opportunity to buy a home where they probably shouldn't have,” said Jeremy Salemson, a mortgage banker with Corporate Investors Mortgage Group Inc.

Home loans require more paperwork Home loans require more paperwork

Now, there's far more scrutiny on credit scores. Lenders say scores at 740 or higher will still get borrowers the best rates, but every 20 points lower will cost more.

Those in the 620 to 680 range get into the risky area where some home loans will be rejected. Those with scores below 600 will need to rebuild their credit.

“You're not going to get a loan anymore below 600,” Astolfi said.

The bar has gotten even higher for those searching for high-dollar homes. Loans of more than $417,000 not only require more proof of credit worthiness, buyers also need a minimum down payment of 10 to 25 percent down payment.

“I'm in the business to provide people loans, but I think this kind of restriction is good for our economy overall,” Astolfi said.

That said, he said he believes some rules go too far. For instance, the rule requiring five or six comparative appraisals instead of two or three.

“If you're a credit-worthy borrower, there are still many good opportunities out there for you,” Salemson said.

St. Louis and Lemiere said they spent close to four months searching.

“It just seemed like there was more paperwork than there might have been,” St. Louis said.

Working with their lender, they found a home and a government-backed mortgage they could afford.

“It was very exciting, a lot of anticipation,” she said.

The key for buyers is to work with an experienced lender even before they start looking to buy. Plow through the paperwork early because it will take more time.  Also, they need to figure out how to improve their credit, if needed, and find out what loan options are best for them.

Get more information about obtaining a loan, including finding the best mortgage, buying a home with a low down payment and much more.

3 Comments

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  • Leonardo Sep 24, 2009

    Something fishy is going on with mortgage rates, and I don't understand it. Aren't mortgage rates supposed to be tied to risk? If you're a riskier investment for the bank, the bank should charge you a higher interest rate. The fact that rates are so low and banks are unwilling to give loans at those rates implies that the mortgage rates are being held artificially low somehow. But who has the power to force banks to only give out loans at low rates? What's keeping them from giving out 8%, 10%, 12% interest mortgages to high-risk customers? Can any bankers answer that?

  • -Enter Screen Name- Sep 24, 2009

    The funny thing is, I'm in the process of buying a home, and I don't see much of any difference than what was required 6 years ago when I bought my first home. In fact, I think the loan application was pretty much the same.

    The only reason more paperwork was involved for me was because I'm now married. We've had to provide the same information as before, but there is more of it because there are now 2 sets documentation to turn in. But we've turned in the same thing that was required of me 6 years ago: 2 pay stubs, 2 months of bank statements, and proof of assets.

    And, at least up until this point - closing is still a month away - I can't say anything has really been "harder" about getting the loan.

  • Gatsby Sep 24, 2009

    "Home loans harder to obtain"
    Yes...Just having a pulse no longer qualifies you as (R)Realtor bait and you have to prove you have a job that can pay the bills. Having to jump through hoops was the way it use to be before the sub-prime lending scam caused the biggest economic fallout since the great depression and it is the way it should stay from now on. If you cannot get approved then you cannot afford it so its time to rent/save until you can.