RISMEDIA, August 28, 2007-(MCT)-The rules of getting a mortgage have changed — while you were on vacation.

At the beginning of summer, you could have a marginal credit score, no proof of income and no down payment, and still get financing for a home.

But that was then. Now the kids are heading back to school and lenders are running scared, worried about all the easy credit they granted over the past few years.

With many lenders refusing to make loans to anyone but the safest borrowers, lending
standards are returning to normal.

“The pendulum swung too far in one direction,” said Greg McBride, a senior financial analyst at Bankrate.com. “Now it’s coming back the other (direction).”

Keith Luedemann, CEO of Charlotte-based Goodmortgage .com, said a person with a 580 credit score could get a home with no down payment three months ago, but now the minimum is more like 720.

“Mortgages are all about risk,” Luedemann said. Lenders are working to minimize that risk by only making loans to those with higher credit scores, documented income and a sizeable down payment.

Subprime loans to people with poor credit scores and jumbo loans of more than $417,000 have all but disappeared, he said.

But for those with a credit score around 680 or above and a 5% to 7% down payment, borrowing less than $417,000, little has changed. You may be asked to provide more documentation of your income — for example, a tax return instead of a pay stub. But for the most part, these conventional mortgages are still available.

Mortgage rates even dipped a bit last week, to an average of 6.52%, according to the mortgage company Freddie Mac.

McBride said this shift in the mortgage business is just a return to normal.

“Credit was cheap and easy for the last few years,” he said. “But now, they’ve turned off the tap.”

The mortgage market will reach an equilibrium within a few years, he said, and home appreciation, interest rates and available credit will go back to historical norms.
The New Rules of Getting a Mortgage

Have a good credit score: the minimum is about 620, but to get a good rate, you’ll want one more like 680-720, or even higher. Have a solid down payment: 10% to 20% is best, says Keith Luedemann, CEO of Goodmortgage.com.

Have documentation of your income, such as a tax return or several pay stubs.

SOURCE: Observer research.

How to Raise Your Credit Score

Lower your debt ratio by spreading credit card debt among your cards, rather than concentrating it on one. A balance less than half of the limit of each card is ideal. Do not cancel old cards. If you do, you are canceling time from your credit history.

Check your credit report for errors. You can get a free copy of your report from each of the three agencies once a year, so make sure you know what’s on it. Find it at: www.annualcreditreport.com ^[1].

SOURCE: Goodmortgage.com

Copyright © 2007, The Charlotte Observer, N.C.

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