Mortgage Rules: Why it May Be More Difficult to Obtain a Mortgage

In 2005, it was super-simple to obtain a mortgage. Most lenders were happy to accommodate any borrower. In the days of easy money, no down payments, and huge appraised values, we were all skipping toward financial freedom...until we came to a screeching halt. The housing crisis opened our eyes (and the eyes of our lenders) to the problems in our easy-money system.

Fannie Mae, Freddie Mac and other big lenders quickly closed the purse strings, making people jump through hoops to get housing cash. In fact, many of these banks returned to the stringent rules of olden days, locking tons of people out of the home-buying game. The new difficulty of obtaining a mortgage took everyone by surprise and left lots of would-be-borrowers wondering how they could ever purchase a home. Fortunately, home purchases and refinances are still possible, just different. Let's take a closer look at these differences.

Money is not Easy in a Low-Credit-Score World

Although it is not impossible now for consumers with low credit scores or small down payments to obtain mortgages, rules are much more severe. Most loan types which allow credit scores below 720 or down payments below 10% are government loans like VA loans and FHA loans. With these government loans, every single detail about your financial life will need to be documented, including the following:

• Many Bank Statements – You will have to bring at least 2 to 3 months of bank statements for each account you own.
• Proof of Large Deposits – Within the statements, if you have made any large, non-regular deposits (like a deposit for selling your car) the lender will need a copy of the check you received and a bank copy of the cleared transaction. You will also be required to show proof of the sale, like a copy of the title signed over to the purchaser on or near the date of deposit.
• Every Paystub – You will have to bring two current paystubs for every job that you hold.
• W-2s and Taxes – W-2 statements (for every job in the past two years) and tax returns for the last two years will be necessary.
• Divorce Decree – If divorced, you will need to bring a copy of your divorce decree.
• Bankruptcy Documents – If you have suffered through a bankruptcy, a copy of your bankruptcy documents will be required.
• Child Support Satisfaction – If divorced and paying child support, you will need to obtain a signed child support satisfaction from your ex.
• Clear Judgments – Any judgments against you will need to be paid and released, and you will have to provide copies of all documents pertaining to the judgment.

It is often extremely frustrating to VA and FHA customers to obtain a loan because of all of the documentation needed, but in return, these loans offer breaks on credit scores and down payments that other loans no longer offer, which just might be worth the hassle.

Good Credit Does Not Mean Easy Money

You would think if you have excellent credit and can put up the cash for a down payment that the road would be paved in gold. Not anymore. Now even those with good credit and substantial down payments do not have an easy route in obtaining a mortgage.

Although not required to document as much as FHA or VA mortgagees, people with credit scores above 720 may be required to present documentation that was not required in 2005. From paystubs and W2’s to bank statements and tax returns, those refinancing or purchasing in our newly stringent mortgage world should expect to provide some documentation (which, thankfully, may only be a surprise and not a hinderance to obtaining a mortgage).

My House Appraised for What?!

Since house values were highly inflated in most parts of the country in 2005, the housing market crash was a rude wake-up call in true appraised values. Now, with appraised values running ten-, twenty- or even one hundred-thousand less than was previously appraised, those looking to refinance could find their refinance dreams squashed or squelched.

I’m Only Approved for How Much?!

In 2005, back when people were approved for any house value they could dream up, mega-purchases were commonplace. Now, many lenders have returned to caps of about 30% of net income. This has left the many homebuyers who harbor lofty dreams reminiscent of the 2005 easy-money era settling once again for starter homes (which we at MomVesting think is smart, not disappointing!).

As we look over these many new rules, we see hope. Mortgages still are possible. As long as 10% down payment, documentation, and perserverance are available, home ownership is within reach.

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