Defining the “credit crunch” Q and A podcast

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We’ve all read and heard about “the credit crunch,” but what does that mean exactly for individuals looking to buy a home or perhaps refinance their mortgage? In this podcast, we aim to define the credit crunch. Here is a brief transcript, but go here for the entire podcast.

Q: What is the credit crunch?

A: It isn’t a simple answer because it impacts several parts of the mortgage process. I can say what it isn’t – the credit crunch doesn’t mean perfect credit and a 20% or more down payment is required in order to get approved for a mortgage.

A: The easiest answer I can provide is simply – there isn’t as much money available today to buy a home than there was a few years ago. That doesn’t mean it is impossible to get a mortgage, but it does mean there are tighter guidelines and more documentation being required in order to get approved.

Q: So, one doesn’t need a 20% down payment and perfect credit score to be approved for a mortgage?

A: Definitely not! Remember that media, print, radio, etc., make extreme statements because people tune in and react/watch “extreme”. Truth becomes relative, and higher ratings are the goal. That is why it always seems one person says the world is ending and another says the world has never been better in the same story!

Q: Generally speaking, what are the minimum down payment and credit requirements?

A: With an FHA loan, the down payment can be as little as 3.5% with a credit score down to 620. Also, there are some programs available on foreclosed properties that require less than a 3.5% down payment.

Q: How is the credit crunch affecting documentation requirements?

A: Credit is being viewed differently. For the first time, FHA loans require a minimum credit score for borrowers along with three lines of credit that have been reporting for 12 or more months.

A: Newly self-employed borrowers are facing a tougher time getting approved for loans. In the past, I’ve helped self-employed borrowers get approved with 6 months of income from the new business on the tax return. Now a full year (and possibly up to two years) is the minimum requirement.

A: Fully documented loans are the only ones available. Applicants must provide pay stubs, bank statements, W2s, tax returns, etc. when applying for a mortgage. No doc… stated income.. stated asset.. anything remotely considered risky is off the table.

Q: Any advice to help someone through the credit crunch?

A: I attempt to set expectations for my clients to let them know the process isn’t the same today as it was a few years ago. I ask them to be patient knowing that in the end they are going to get a home at a great price with a great interest rate.

For more information regarding the credit crunch and qualifying for a mortgage, don’t hesitate to contact me!

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