Ask a banker: Is it harder to qualify for a mortgage loan now, after the recession?
Ask a Banker
Question: We’ve heard that it’s harder to qualify for a mortgage loan now, after the recession. Is that so?
Answer: No, absolutely not. Basic underwriting guidelines are about where they were in the late ’80’s and early ‘90’s. Income is verified the same way today, as are liquid assets. The credit reporting process is much more transparent, thanks to recent consumer protection regulations, so errors on a credit report are more readily resolved.
Subsequent to the Great Meltdown, there’s a lot more paper work as a result of the Dodd-Frank act and the creation of the Consumer Financial Protection Bureau, although this involves mainly borrower disclosures and explanations.
The collected information for a mortgage loan, i.e. employment verifications, verification of liquid assets, are checked more thoroughly than before the crash, to reduce fraud in mortgage lending, which was certainly prevalent during the first decade of this century. Appraisal requirements have also tightened, and the reports are intensely vetted to, hopefully, assure quality in valuations.
So, essentially, it’s not harder to qualify, but it might be a tad more frustrating, because i’s are carefully being dotted, t’s meticulously being crossed.
But it’s nothing compared to what getting a home loan was like in the 1960’s. It might have been easier to get into Harvard Law than buy a home. Here’s a quick trip down memory lane:
First, income to debt qualifying ratios were much tougher: then, your debt, including your mortgage payment, couldn’t be more than 25% of your total income; today that ratio is 42% or even, occasionally, higher.
But then it got weird, and I’m not making this stuff up. These were guidelines for FHA and VA loans.
The wife’s income could not be counted towards qualifying unless there was incontrovertible proof that she could not bear children. Single women could not qualify for a loan unless they were practicing professionals, i.e. physicians or attorneys. Back then I was involved in only one loan to a single woman: a 50 year old psychiatrist.
Pat Dalrymple is a former bank president who has been making mortgage loans in western Colorado since 1967. He’s currently an advisor to Grand Mountain Bank’s Mortgage Lending Outreach Initiative. He welcomes your questions on lending and banking, and can be reached at email@example.com.
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