New Home Loans and a Changing Mortgage Industry

Sheryl Landrum
LoanBiz Columnist

Article Rating , 4 out of 5 based on 1 votes

The recent foreclosure crisis has affected the way that mortgage companies underwrite new home mortgage loans. Stricter underwriting guidelines are designed to protect consumers and mortgage holders against defaults, whether they are loans for a new home purchase or a refinance of an existing mortgage loan. If you are looking for a loan for a new home purchase or a refinance, here is what you can expect to find when you meet with your lender.

New Home Loans and Your Credit Score

Credit scoring is more important then ever for getting a new home loan. Borrowers with credit scores less than 680 have been considered Alt A, or sub-prime, borrowers by lenders for years and have not been able to qualify for good interest rates on their mortgage loans. Now Alt A borrowers may not be able to qualify for any new home mortgage loan without full documentation.  This means the ability to prove income and assets and funding mortgage impound accounts for property taxes and insurance. Lenders are also restricting the type of mortgages they will give to sub-prime borrowers and are increasingly making it more difficult to do adjustable and variable rate home loans that are interest only and are over 80% of a home's value.

Even Prime Borrowers May Have Difficulty

Even prime borrowers will find that they need more when qualifying for a new home loan. If you have great credit you still might not get the best interest rate for your mortgage loan without going through more restrictions than you would have a year or two ago. Lenders are giving prime interest rates on new home purchase loans to home buyers who have a sizeable down payment (20% or more), can document their income and assets, are willing to have impound accounts, and are looking for a more conservative or secure mortgage loan such as a 30 year fixed rate mortgage. Those borrowers who are looking for adjustable rate mortgage loans, who want to put less than 20% down on a new home purchase, or access more than 80% or their home's equity, as well as those who are looking for a mortgage loan on investment property, are going to find it more difficult to qualify for a new home loan at good market rates.

While it may seem that the mortgage industry is being unfair when it comes to qualifying for a new home loan with a good interest rate, the industry is actually reverting back to good mortgage loan principles and practices. The past two years have seen many home borrowers defaulting on their new home loans. While I think that it is true that most of us would love to own our own homes, taking on a mortgage loan is a huge responsibility and one which is best served by being able to adequately afford it. Make sure you act responsibly and work with qualified loan officers and lenders to ensure that your new home loan is one that will work for you.

About the Author
Sheryl Landrum is a Senior Loan Officer with First Capital Mortgage in San Diego and Prudential Realty in Bonsall, California.

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