Getting a Mortgage in a Tough Economy

Although the government and the financial services industry are working to improve the prospect of more Americans getting mortgages, it can still be a challenge. Many banks have adopted stricter lending rules as a result of the financial meltdown in 2008.

Here are four steps to increase the likelihood that you will qualify:

• Calculate the amount of the payment you can afford.
  Before you apply for a mortgage, you should have a good idea of how much you can afford to pay for the house. If you apply for a mortgage amount that fits within your income, you’ll be more likely to have your mortgage application approved. Check the Pinnacle Learning Center for a calculator that will help you determine how large a mortgage loan payment you can afford.
• Be able to access your financial documents.
  Lenders will want to know a great deal about your financial history before they give you a loan, so it’s important to organize all the documents you’ll need for your application. You may be asked for items such as pay stubs or proof of other income you might have, tax returns and information on other debts, such as credit cards or auto loans. The application process will be faster and smoother if you have this documentation in order beforehand.
• Don’t max out your existing credit lines.
  It’s a good idea to have some credit—whether it takes the form of a credit card, auto loan or other debt—but not to overdo it. How much is too much? As a general rule, you should use no more than 25 to 30 percent of your available credit. So, if you have a $2,000 limit on a credit card, don’t carry more than a $500 to $600 balance on that card.
• Know your credit score.
  After the wave of loan defaults and foreclosures that have taken place in recent months, lenders now scrutinize loan applications to ensure that borrowers can afford to pay off the debt they are taking on. In particular, banks are looking for people with good credit scores.

Your credit score is based on your financial situation and how well you have managed your credit in the past. If your score is low, you may have trouble getting a mortgage or you may face stricter loan terms. 

The three national credit bureaus systems in the United States are Equifax, Experian and TransUnion. These national credit bureaus are for-profit companies owned by their shareholders. They are not government entities or funded by the government.

While many creditors report information about your account to all three credit bureaus, some choose to report only to one or two. The credit bureaus don’t share their data with each other, so your reports may show different information. When creditors, landlords and potential employers check your credit information, they can pull your credit report and score from any of the credit reporting companies. That’s why it’s important to check your reports from each of the three bureaus.

Looking at your reports can also help detect identity theft, because you may find evidence of someone trying to open new accounts or obtaining credit cards in your name. You are entitled to one free report from each of these credit bureaus every year and can request them at www.AnnualCreditReport.com.