My friend and mentor, Danny Thornton, wrote the following post on his Blog, The Mortgage and More Blog. I think you will get a lot of good information from his post about the changes in the mortgage industry, but it is written in such a way that it will help you find the mortgage that you need. True, the stated income loan is gone, but there are a lot of good loans out there for the people that can actually afford to buy a home.

Tuesday, February 3, 2009

Getting Approved for A Mortgage

by Danny Thornton

One of the first things that I always hear when it comes to mortgages today is that it is not as easy to get one today as it was 3 years ago. Well, frankly, that is true. Today the lenders are being a little smarter with who they give their money to.

With that said, the issue of getting qualified for a mortgage is not what has gotten harder. What has gotten tough is lending money to people that either can not prove their income or prove that they can manage their finances. Let’s take a look at both issues for a minute.

A few years ago, you could basically call up a lender, state that you make XYZ for an income, and get a mortgage. In my book, this is not responsible lending. Responsible lending tells you that a potential customers needs to be able to pay back the money and to do so, we need to determine if that potential customer actually makes XYZ. This was a program that was being offered to people with credit scores in the 500s and probably never should have been.

That leads me into the second issue which was people that could not manage their credit. This might be one of the biggest issues and it still is an issue today. When buying a home, the lender needs to make sure that the borrower can actually pay back the mortgage. If they are currently showing late payments or collections, this should throw a red flag up to the lender. In this case, the lender then needs to determine if the borrower can pay back the amount in a timely manner to them.

Both of these issues that I have written about are issues that affect the lender in the long run. The biggest effect is brought on from the investor. First off, a lot of investors will not back “stated income” loans due to the facts mentioned about. The same goes for “credit risk” loans as well. Investors buy these pools of loans because they want to make money. The higher the risk, the higher the return, but this includes a bigger chance of losing as well.

These are some things to consider when you go to borrow money from a lender in the future. It is not that we do not want to lend money at this time. It is the fact that we have to be picky with whom we lend to now.

Feel free to contact Danny if you are on the East Coast or me if you are on the West Coast. We will either help you through the process or put you in touch with one of our associates that we know can help you through the new world of mortgage lending. Whether it is for a purchase or a refinance, we have the ability to help you understand the process. Not everyone can qualify for a loan in this climate, but we won’t jerk you around during the process.

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