Avoiding Mortgage Problems

With foreclosures and mortgage defaults on the rise, lenders are tightening up lending standards. So, if you’re in the market for a mortgage, how does this affect you. There’s no doubting that the mortgage industry has taken a battering in recent months and there will be less credit on offer for the next few months while lenders assess the situation. It isn’t just first time buyers who are finding it more difficult to get mortgages, home equity loans, or borrowing against the value of your homes, are also being hit. Homeowners are expected to provide a lot more documentation and it is increasingly rare to borrow the full market value of your home.

Even though many of the loans going into default were granted based on well-proved credit scores, some types of loans offered had not been around in the past. Lenders had also been offering loans up to 100% of the home value and in some cases, up to 125. Lenders are becoming more circumspect about these high percentage loans and are carrying out a lot more investigation.

No doc or low doc loans are becoming a lot more difficult to get. These loans required no income verification from the borrower and the lending decision was based purely on the market value of the property. As property values have stagnated and in some areas are in decline, the risk to both borrower and lender has increased.

There are also fewer piggyback loans. A 2006 Standard & Poor’s study reported that piggyback loans were 43% more likely to go into default against first time mortgages of the same size. Lenders will require larger down payments to consider these types of loans.

Borrowers will have to face up to the fact that obtaining credit is not going to be as easy as in the past few years. The mortgage industry is licking its wounds at the moment and are staying away from the riskier types of loans. But for buyers who have a good credit score and a steady income will still be able to get some good mortgage deals. Interest rates are not expected to rise dramatically this year as the government is trying to help the housing market recover. House prices are falling and buyers can still take advantage of the current situation and pick up some real bargains.

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