By now, many economists had projected that the "credit crunch" would have eased. But prospective homebuyers -- including those with stable jobs and decent credit -- still confront unusually high hurdles to gain approval on their home-loan applications.
"People in the mortgage industry are extremely hungry for business. But they're also extremely picky who they lend to. The last thing they want are more foreclosures coming back to haunt them," says Blaine Rickford, president of an independent mortgage firm.
Mortgage officers -- those who take loan applications and deal with the public -- prepare files on would-be borrowers. Yet no file is ever approved by a bank unless its underwriters give the green light.
"You never get to meet the underwriters -- these loan supervisors are off-limits to borrowers. But mortgage officers talk to them directly and can plead your case if they think you're a good bet," says Rickford, who's worked in the mortgage field since 1978.
Develop a positive rapport with you're mortgage lender and you're more likely to reach your home-buying goal, says Leo Berard, charter president of the National Association of Exclusive Buyer Agents (www.naeba.org).
"You don't want to torpedo your chances of owning a home because of some financing glitch. Those who win in the mortgage process take a businesslike approach," Berard says.
Here are pointers for home-loan applicants at a time of tight credit:
Educate yourself on the basics of mortgages before you apply.
Many homebuyers, and particularly novices, are in the dark about mortgages and how lending works. Because they feel ignorant on the topic, they hesitate to pose important questions.
But as Berard says, the basic concepts of mortgage lending aren't so complex that you can't grasp them in a short period of time. Start with the Internet, taking a look at the "mortgage" entry in Wikipedia (www.wikipedia.org), the free online encyclopedia, and its related links. You can also go to the U.S. Department of Housing and Urban Development's Web site at www.hud.gov.
Also, Berard encourages you to stop by your local library to check out a book or two on the topic, such as "Mortgages for Dummies," co-authored by Ray Brown and Eric Tyson.
Knowing a bit about mortgages before you apply will help you be more adept at choosing the best possible home-loan product for your situation. You'll also be less vulnerable to unscrupulous lenders, Berard says.
Arrange a face-to-face meeting with your mortgage lender.
Many mortgage officers are happy to entertain applications from would-be borrowers they've never met. Technically, there's no reason you can't apply for a home loan over the telephone.
"But for important business transactions, it's always to your advantage to meet one-on-one," says Berard, a veteran real estate broker.
A face-to-face meeting is especially important for those expecting to confront unusual barriers to loan approval, Rickford says. These include people who are self-employed, have credit scores below 720, or have limited assets -- such as savings -- on which to fall back if they can't meet their mortgage payments.
"An in-person interview adds to your credibility as a borrower. You'll be more believable when you attempt to explain your financial issues," Rickford says.
Also remember to dress the part when you go to the lender's office. You needn't wear a business suit but you should look neat. Avoid overly casual attire, such as gym clothes or sandals.
Have your documents ready when you reach the lender's office.
Mortgage officers are working harder than ever to assemble files that meet the exacting requirements of their underwriters. They're very appreciative of borrowers who make their jobs easier by showing up well-prepared.
Rickford says ideal loan applicants arrive at their initial appointment with extra copies of the essential documents their lender will need. These include the most recent month's worth of pay stubs and W-2s for the last two calendar years. You're also likely to be asked for two years' worth of tax returns, along with statements showing the present value of your holdings -- such as savings accounts, stocks, bonds and retirement funds.
Mortgage officers are also impressed by loan applicants who've scrutinized their credit reports in advance of a meeting. Under federal law, you're entitled each year to one free credit report from each of the three large credit bureaus: Equifax, Experian and TransUnion. Just go to this Web site: www.annualcreditreport.com.
You'll also want to access your credit scores. Such scores, which draw on data from the credit bureaus, provide lenders with a quantitative measure of a person's credit risk. Most lenders use FICO scores, pioneered by the Fair Isaac Corp.
Usually you need to pay a fee to obtain your credit scores. One approach is to buy these through the Fair Isaac Web site: www.myfico.com. You can also receive credit scores through the credit bureaus. FICO scores typically range from 300 to 850.
Berard recommends you make printouts of your credit history obtained through your online search. Place these in a three-ring binder. Use a highlighter to identify any "dings" or inaccuracies that show up in your credit reports. And be prepared to tell the lender the steps you've taken to resolve these issues. For example, you've paid the dentist who reported you delinquent to the credit bureaus and have obtained a receipt to prove it.
Stay in close touch with your lender until your mortgage is approved.
Given the recent turmoil in the mortgage industry, homebuyers are less likely than before to get early approval for financing on a home they've picked out. More questions will probably arise as you go through the application process, and some will require a written response from you.
For instance, suppose your credit reports show that you were late in making a payment on a car loan or credit card. The processing of your mortgage could be held up until you draft a justification for such credit blemishes -- such as a temporary lapse in employment when you were between jobs.
Lenders appreciate loan applicants who stay in close touch and are proactive about resolving issues that surface along the way, Berard says.
"Call your lender once or twice a week. Ask politely if you can do anything to help get your mortgage through. Like anyone in a service field, lenders much prefer dealing with folks who are cooperative," he says.