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Mortgages: What It Takes to Get One Today

Apply for a mortgage these days, and you'll quickly discover that lenders' attention to creditworthiness is drastically different from what it was two years ago. The banks have also got religion about how much they'll lend against any one home. Jumbo mortgages (typically those over $417,000; more than $729,000 in some high-cost areas) are especially hard to get, and they're expensive when you can get them.

“Jumbo rates are still stubbornly above the 7 percent mark, and down-payment requirements are especially stringent — at least 20 percent or, in some cases, 30 percent,” says Greg McBride, senior financial analyst at Bankrate.com.

Here’s a guide to today’s credit world for mortgage borrowers:

Credit Availability

Medium

What It Takes to Get Approved

  • A modest appetite for borrowed money: Your chances of approval are higher for “qualifying” loans (those smaller than jumbos).
  • A rich down payment: Expect to be asked to fork over 20 percent or more.
  • Few other debts: If payments on all your loans will total more than 40 percent of your income, brace for rejection.
  • Money in the bank: You’ll need cash reserves equal to at least two months of mortgage payments (including property taxes and insurance).
  • A good credit score: Best if it’s 740 or higher (on the FICO scale of 300 to 850). Less than 620 and you’ll have a very difficult time getting loans approved.

What You’ll Pay

The average rate for a 30-year fixed is 5.3 percent; for a 15-year fixed, it’s 4.9 percent, and for a 5-1 ARM, it’s 4.6 percent. But rates vary dramatically based on your credit quality. If you live in California and are looking for a $400,000 mortgage with a 20 percent down payment, you might pay 5.3 percent with a credit score over 760, 5.9 percent with a score in the high 600s, and 6.9 percent in the 620s, according to myfico.com.

Advice

If you can’t put down 20 percent, try for a Federal Housing Administration (FHA) loan. You’ll have to buy mortgage insurance and spend no more than 31 percent of your income on mortgage payments. But if you qualify, you may be able to get a mortgage with a 3.5 percent down payment. “FHA loans have made a huge comeback because they are effectively the low-down-payment program in this environment,” says McBride.


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