Are mortgages harder to get than they were a year ago?

Dear Liz:

I would like to buy my first home but have heard that mortgages are very hard to come by these days. What should I know before shopping for a home?

Fatima, Missouri

Dear Fatima,

Mortgages are not being handed out like they were a few years ago, but for most people they are not that tough to get. Here is a quick rundown of the state of mortgage lending today.

Mortgage brokers

Mortgage brokers have left the industry in droves, largely due to new legislation, licensing requirements, and a contraction in the industry. This means less competition and less access to a wide variety of products. However, you can still find mortgage brokers and direct lenders if you know where to look.

Subprime and Alt-A lenders

Subprime or bad credit home loans have not returned. People who have no down payment and unverifiable income, or who have a bad credit history, are not being financed.

Alt-A mortgage lenders finance people with unverifiable income and / or assets and people who want optional payments (loans with negative amortization features). These loans have not re-entered the market as of yet.

Fannie Mae and Freddie Mac

Fannie and Freddie have tightened up their guidelines for condominiums and added risk-based pricing. This means the best mortgage rates are not available to those with lower down payments and/or credit scores. In addition, individual lenders sometimes add tougher guidelines (called overlays) because they don't want to risk losing their credentials or buying back loans. Quality assurance initiatives mean extra checks (like a last-minute call to your employer or a new credit report) right before funding to make sure you are still a good risk.

Private mortgage insurance

Mortgage insurers have definitely tightened up their guidelines, requiring higher credit scores (at least 680 in most cases) and refusing to insure properties like many manufactured homes, condominiums, properties in distressed states like Florida, tri-plexes and four-plexes, and investment properties.

Jumbo loans

Those requiring very large home loans have a harder time finding them than in the past. Jumbo mortgage lenders are requiring higher down payments and backing out of second home and investment property financing.

FHA

FHA is more popular then ever. Only 3.5 percent down payment is required in most cases, underwriting is still quite flexible, and there are no risk-based surcharges. Be sure to apply for an FHA loan with a licensed and approved FHA lender. You can find FHA mortgage quotes on this site.

Home loans are harder to find than in the past but are still widely available and affordable.