Basic Requirements Needed To Receive A Mortgage

With the housing market in turmoil after the sub-prime mortgage crisis and the Federal bail-out of Freddie Mac and Fannie Mae, the basic requirements to receive a mortgage have tightened up. According to at least one real estate financier, to get a mortgage these days you"practically have to walk on water". While this is a bit of an exaggeration, it is true that it's far harder to qualify for a mortgage now than it was just two years ago. It's not, however, any harder than it was before 2000, when the real estate market went into hyperdrive. According to many professionals in the credit industry, what we're seeing is a return to the norm.

So exactly what do you need to get a mortgage these days? Says Patricia McClung, of mortgage giant Freddie Mac, creditors are getting back to the basic three C's of mortgage lending - credit history, capacity and collateral. Here's what you need to know about each of those three requirements, and how they'll affect your ability to qualify for a mortgage in the current mortgage market.

Credit History - Do you pay your bills?

The first C in the mortgage triad is credit history - yours. While having a spotty credit history won't make it impossible to get a mortgage, it will make it more difficult - and more expensive. Lenders are willing to offer far lower mortgage rates to those with the highest credit scores (760-850) than they'll extend to those with lower credit scores. The difference can be astronomical. According to June 2008 figures, lenders were offering an average of 5.9% mortgage rates to those in the highest credit bracket. Those in the lowest bracket that Fannie Mae will accept (580-619) were being offered rates of 9.4%. On a $250,000 mortgage, that's a difference in monthly payment of $588.

In order to be considered for a mortgage by most major lenders, you'll need a credit score of at least 580, though you may still find some lenders willing to take a risk on someone with a lower credit score, particularly if they really shine in one of the other two C's. The problem, of course, is figuring out exactly what constitutes a credit score of 580. There are many different barometers, and even the major credit reporting bureaus use different reporting criteria. Essentially, in order to qualify for a mortgage, you should have:

5. no missed or late payments on any credit or utility accounts for at least the preceding 12 months

6. a debt to income ratio of .45 or less

7. the legal ability to enter into a contract

8. no outstanding defaults on credit card or other loans

Capacity - Can you pay your mortgage?

In essence,"capacity" simply means 'do you earn enough to make the payments on the mortgage you are asking for?' The typical rule of thumb for deciding capacity is that your mortgage payment should be no more than 28% of your monthly gross income. The debt to income ratio referred to above is another way of determining capacity to pay. Follow these steps to calculate your debt to income ratio:

• Add up all your sources of income (before taxes) for the month.


• Add up your monthly debt. Include all credit card payments and loan payments, including student loans and car loans. Add in your calculated housing costs, including mortgage, insurance, private mortgage insurance and property taxes.


• Divide your debt by your income to get a debt to income ratio.

Article Source: http://www.cursebustersound.com/article

About Author:
Brain Jenkins is a freelance writer who writes about topics pertaining to the mortgage industry such as the basics of securing a mortgage from a mortgage company.

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