Mortgage lenders are tightening standards in ways that can make it much more difficult for potential borrowers to get approval for loans.
The new standards fall into the following areas, according to Wells Fargo & Co. and other large lenders:
- Ability to repay. Buyers are no longer being qualified at the low initial rate. They must qualify for the loan payments at rates equal to what the loan would be if it reset at a higher rate.
- Down payment. Lenders want buyers to put some money down, even as little as 5 percent or 10 percent. Loans for 100 percent of the price are very hard to get.
- Credit score. Credit scores range from the high 300s to the low 800s. Borrowers with a credit score above 680 are likely to qualify for a reasonable deal. Between 660 and 680, they may qualify, but the deal could be pricey. Potential borrowers with a score of 620 or less need to raise their scores before they can qualify.
- Income and income verification. Producing proof that a borrower has a job is key; “stated income” loans are much more difficult to get. Also lenders are unlikely to approve a loan in which the home buyer will spend more than 45 percent of his gross income paying off debt, including paying the mortgage.