Mortgage hunt tough, not impossible

What borrowers can do to get favorable terms.

from the September 22, 2008 edition

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With today's conservative lending, many riskier offerings have been disappearing. Take the now-much maligned subprime lending and so-called "alternative-A [alt-A] products" that required little or no documentation of borrowers' assets. "In 2005 and 2006, subprime and alt-A loans accounted for 30 percent of all lending," says Guy Cecala, publisher of the newsletter Inside Mortgage Finance. When those offerings began to dry up, "it took out almost one-third of the market."

On the high-end side, borrowers seeking jumbo loans, of about $800,000-plus, can expect difficulty, experts say. Those seeking such mega­loans would need at least a 20 percent down payment and face higher rates than with Fannie Mae- and Freddie Mac-conforming loans, says Christine Clifford, vice president of Wholesales Access Mortgage Research & Consulting Inc., in Columbia, Md.

Evidently, consumers have been feeling the pinch. In June, Deloitte surveyed 2,019 American adults about their experiences obtaining different types of credit in the past year. Among other findings, fully 67 percent of respondents who'd applied for a home mortgage "found it more difficult" to get one. As Adam Schneider, principal at Deloitte Consulting, spells out, getting a mortgage "is harder compared with a couple of years ago, when you seemingly could fill out a form, didn't have to prove anything (about your income) and get a fair amount of money quickly from a bank."

So what should home loan borrowers do to get favorable terms on a mortgage?

Plan well in advance, experts say, by taking these steps:

•Review your credit history by obtaining a copy of your credit report. Once a year, you can get a free copy through annualcreditreport.com.

•Improve your credit score by paying down debts and continuing to pay bills on time.

"Don't open a new credit card," says Barry Habib, CEO of the online, Mortgage Market Guide. Instead, "go to your current credit issuers and ask that your credit limit be increased. That way, if you hit a financial speed bump – say, your car needs major repairs – you can put that expense on your credit card and not delay bill payments" because you lack the funds. "That's an easy way to improve your credit score."

•Assess your housing needs and financial situation to determine the kind of mortgage to obtain. For instance, "if you're a young, single person buying a studio apartment, you might not need a 30-year fixed rate mortgage," says Gumbinger. That means "you need to know your borrowing objectives and goals to determine the path to take and avoid the wrong decisions."

•Check with a number of lenders – at least four to five, if possible – to find the best terms. For information on lending terms, stop in at, or phone, your bank and other lenders, check advertisements in newspapers, and visit websites such as hsh.com and bankrate.com.

"If you're out shopping, you'll find the price of money is widely variable right now … especially for an adjustable rate mortgage. Many smaller institutions, such as small banks, thrifts, and credit unions, are stepping up with very aggressive pricing," Gumbinger says.

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