Navigating the new mortgage roadmap

Filed in archive becoming a better borrower on May 12, 2009

I applied for my most recent mortgage loan back in 2006. You might remember that this was right before the housing boom ended and the housing crash began. Bad timing on my part. Today, my home is worth far less than what I paid for it.

But there was one benefit of buying a home in 2006: Getting a mortgage loan was simple.

Loan officers back then were still giving mortgage money to just about anyone. You could breath? You had a couple of dimes in your pocket? You were approved.

Today, that's changed. It's not all that easy to qualify for a mortgage loan. Lenders, stung by the growing number of homeowners who are no longer able to make their monthly mortgage payments, are returning to the stricter guidelines that they were supposed to be following all along.

For example, if you're applying for a mortgage loan today, you better have a high enough income to qualify. And you better not have a ton of debt. And, even more important, you need to have a good FICO score.

That FICO score may be the most important factor of all these days. Lenders want to know that borrowers have a history of paying their bills on time. That's what a credit score tells them. There are three different bureaus that produce credit scores - Experian, Equifax and TransUnion. The higher the score, the better. If your score is low, you'll be asked to pay higher interest rates for your loan. If it's too low, you won't qualify for a loan at all.

It's important to build up that credit score before you apply for a mortgage loan. The best way to do this is to pay your bills on time. Unfortunately, if you have a history of not doing this, there's no quick fix for boosting your score. You may simply have to wait before applying for a loan until your history of bill payment outweighs your previous history of late payments.

You should check your credit score before applying for a mortgage loan. Consumers are allowed a free credit report. You can find out more about this at the Federal Trade Commission.

If you do fail to qualify for a mortgage today, don't feel too bad. You're in pretty good company. According to a story by consumer information site Bankrate.com, about half of all the people who apply for mortgage loans today are being turned down.

You should view a rejection as a sign that you need to improve your financial situation. If a mortgage lender refuses your request for a mortgage loan, the odds are good that you are not financially ready to own a home. Taking on that big monthly mortgage payment is a large burden, and a big responsibility.

Take some time to build up your savings, reduce your debt and establish a new history of paying your bills on time. It may take five years or so, but patience is key here. The country got into its current financial mess largely because people who weren't ready to own a home became homeowners. There's no shame in renting. And there's no shame in strengthening your financial situation until you're ready to take on that mortgage payment.