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Lenders Looking for More Security

By Faye Mergel
Published: Saturday, December 26th, 2009

The dream of having a home is supposed to be easier these days with mortgage rates and home prices lower than they have been for years. Ironically, that dream has become more unreachable for some because of new lending standards imposed by creditors. Aside from meeting minimum down payment, lenders also require borrowers to have strong creditworthiness.

Lenders Looking for More SecurityTo determine if a potential borrower can meet loan terms, creditors check his credit report, monthly income, and employment stability. Typically, they focus on the last two years of a person’s income and employment history. They are also more critical of credit report black marks such as foreclosures and bankruptcies.

Industry specialists noted that self-employed loan applicants are often required to present two years worth of tax returns and profit-to-loss statement on their enterprise or business. The creditor will then compute if the net income declared over the timeframe qualifies for their mortgage loan. They add that the debt a person carries and his repayment history, both reflected on his credit report, determine the amount of mortgage he can qualify for.

Experts caution potential borrowers that their credit report could also determine availability of a loan. Those who are planning to purchase a car and home next year are advised to purchase a house first. They explained that mortgage payments do not affect availability of a car loan, but vehicle loans could greatly affect the home loan one could qualify for.

Aside from first-time homebuyers, borrowers looking for mortgage refinancing are also advised to mend their bad payment habits before looking for a new creditor. Finance advisers say people who make the habit of being late on their home payments often find it difficult to convince lenders that they will change their practice soon. However, experts observed that there are also prompt payers who are not able to qualify for mortgage loans because of credit report mistakes.

The credit bureaus and debt collectors make reporting mistakes, experts remind consumers. For this reason, they advise borrowers to regularly check their credit report. Consumers need not look for professional help in making corrections. Specialists say individuals can do it themselves by simply contacting the bureau providing the contested credit report. The bureau will then provide consumers the guidelines on how they can correct those inaccuracies.

Meanwhile, industry specialists encourage renters to start looking for the home they would like to buy as the extended $8,500 tax cut is set to end by spring next year. Tenants are advised to purchase their own house instead of continuing to rent because of the near-record low prices homes have posted this year.

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