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Credit Crunch Affecting Mortgages?

Main Boise Home Loans

So, you mean it is harder to get a mortgage now than two years ago? ;-)

A recent survey conducted by the Fed has found that the credit crunch our economy is experiencing has spread to mortgages. Seriously? As a mortgage loan originator, I hadn't noticed that yet...YEAH RIGHT!

OK...enough with the sarcasm. Truthfully, what I find interesting about this survey is the number of lending executives that have reported a "tightening" of their guidelines for lending mortgage dollars.  Since November:

55 percent of surveyed domestic bank executives (up from 40 percent in November) have tightened their guidelines for prime mortgage products.

60 percent of domestic executives have tightened their guidelines for approving applications for revolving home equity lines of credit (HELOC's).

At face value, this survey indicates that roughly half or more banks surveyed are tightening guidelines on mortgage product applications for prime borrowers.

So...exactly how does this affect you if you are a prime borrower? The answer comes mostly back to your credit score. If you are a homeowner with a credit score in the 700-720 range or higher, you should not have much problem in obtaining a mortgage loan.  However, if you are a homeowner with a credit score in the 650-680 range, you may experience much more difficulty than you would have 3 months ago. There is more to it than just that; employment history is another big factor in determining whether or not your mortgage application is approved.

In the last three weeks, the Fed has cut their key interest rate by a bold 1.25%. When combined, those two rate cuts represent the Fed's most intensive rate reduction in two decades.

In summary, interest rates on certain mortgages are moving lower at a rapid rate. But at the same time, it is getting harder and harder to qualify for new mortgages. The lesson here is simple...take care of your credit score, and you typically won't have problems. Pay your bills on time and keep revolving balances on credit accounts low (less than 30% of credit limit). These two factors represent 65% of your credit score.

Posted by Eric Leigh at 2/5/2008 12:10:00 PM

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