Mortgage rates are near historic lows. Home prices have crashed from their highs four years ago. It seems now would be a great time to buy a home, especially since rents are rising.
There's just one problem. Qualifying for a mortgage is harder than it has ever been.
Back during the housing boom, mortgage brokers would write a mortgage often for little or no money down. If you had a checkered past when it came to employment, no-documentation loans were available. You told them how much money you made and they took your word for it.
As a result many consumers purchased homes they really couldn't afford. It was one of the catalysts of the credit meltdown.
Now lenders are cautious -- maybe overly cautious. According to Kiplinger, they want to see the “three Cs.” They look closely at your credit history, they examine your capacity to repay the loan, and verify your collateral.
That means to buy a house, you need a strong credit score -- 720 or above. You need a good job and the prospect that it will continue. And you need to bring a large chunk of cash to the settlement table. In most cases, lenders want borrowers to put down at least 20 percent of the purchase price.
With the average home costing over $180,000 that can be a lot of money. Just a few years ago buyers could put down five percent or less. As late as 2007 some lenders were offering loans at 105 percent of the purchase price. Those days are long gone.
Even if you happen to have 20 percent of the purchase price in cash, that's no guarantee you will be approved for a mortgage. The lender wants assurances that you will be able to continue making the house payments each month. They look at your present job and what your prospects are for the future.