(Originally published December 26, 2009.)
These are interesting times.
Fannie Mae and Freddie Mac, the nation’s two largest sources of mortgage money, are under federal control. Lenders throughout the US continue to be declared insolvent. Many of America’s largest institutional banks received federal TARP money just to stay afloat.
The worst might be behind us; but banks remain overly cautious about lending. The media still reports stories about borrowers denied mortgages, who a few years ago, would have easily qualified.
Yet, I commonly hear borrowers telling me how confident they are about being approved. Haven’t you heard? The banking industry is in the midst of a credit crisis. Are you sure YOU won’t have a problem?
Most banks and loan officers subscribe to the business model of throwing mortgage applications against the wall in hopes that some stick. Mortgage applicants seldom hear a discouraging word until, months later, out of left field, they receive a mortgage denial. “I was shocked,” they tell me. “Why would they deny me?”
Most borrowers don’t fully appreciate the factors that lenders perceive as risks. Circumstances that weren’t an issue a few years ago are now seen as red flags:
- Are you self employed?
- Purchasing a home with less than a 20% down payment?
- Want to refinance, but your home is worth less than it was a few years ago?
- Do your tax returns show only a portion of your true income?
- Do you own rental property?
- Do you want to mortgage this rental property?
- Do you have sizable debt?
- Are you employed in an industry that might be deemed “unstable” or one that’s experiencing economic difficulties?
- How are your credit scores? Minimum required credit scores have increased dramatically. A score considered “good” last year is today only “fair.”
Let me be perfectly clear. If any of the above factors apply to you, it is still possible you CAN get a mortgage. However, it’s no longer possible to shop for a mortgage like you would a container of orange juice. Choosing simply based on price will result in rancid orange juice and a second trip to the market.
Today it’s crucial you work with a true professional who knows the industry well; someone who can help you avoid these problems and the resulting mistakes that will cost you thousands of additional dollars.
Since 1992, Warren Goldberg has helped thousands of clients own their homes, refinance their mortgages, restructure their debts, and invest in real estate. Warren is known for his wide knowledge of mortgage products and wealth-creation strategies.