By 2013, many housing industry experts had expected an easing in the nation's stringent mortgage-lending standards. But while there's been a slight loosening since the economic downturn hit, many homebuyers, including those with decent credit, still confront big barriers to home finance.
"Lenders still scrutinize every mortgage application as if searching for the code to the human genome," said Rick Sharga, executive vice president of Carrington Mortgage Holdings, the parent company of multiple mortgage firms.
Mortgage officers, who deal directly with applicants, prepare files on would-be borrowers. But before any file gets final approval, it needs a green light from a supervisor, known in the business as an underwriter.
"As a borrower, you never meet the underwriter. But if your mortgage officer thinks you're a good applicant, he can talk to the underwriter and argue for approval of your loan," Sharga said.
He stressed that it's important for all would-be borrowers to maintain a positive working relationship with the mortgage officer who takes their application.
Here are a few pointers for mortgage applicants:
•Learn as much as possible about the mortgage market before applying.
Many homebuyers, particularly first-timers, are fuzzy in their grasp of mortgage-related terminology and how the system works, said Leo Berard, charter president of the National Association of Exclusive Buyer Agents.
But the basic concepts of mortgage lending can be picked up easily. Berard recommended the Internet as a starting point. Start by taking a look at the "mortgage" entry in Wikipedia. In addition, there's a primer on mortgages on the website of the U.S. Department of Housing and Urban Development, hud.gov.
Check your local library for authoritative books on the subject. Berard recommended "Mortgages for Dummies," co-authored by Ray Brown and Eric Tyson.
Armed with knowledge, you're more likely to select the best possible loan product for your situation. Also, you'll be less vulnerable to unscrupulous lenders.
•Consider going to the lender's office.
Given their current business model, mortgage officers are now able to do nearly all their business by phone, email, fax and express mail. And the technology available to the industry allows them to do so easily.
"But if you're a first-time buyer, I urge you to meet with the lender," said Berard.
A one-on-one meeting is particularly important for applicants expecting to confront special barriers to mortgage approval, Berard said. These include homebuyers who are self-employed, work on commission or have changed jobs recently.
"You'll be better able to explain your financial issues at the lender's office than over the phone," Berard said.
•Make your financial documents readily available to the lender.
Due to the stringent regulations now governing lending, mortgage officers are working harder than ever to assemble files that meet the exacting requirements they face. They're very appreciative of borrowers who make their job easier by showing up well prepared.
To increase their odds of timely mortgage approval, Berard said, applicants should, the earlier the better, provide their loan rep with copies of key documents. These include the most recent month's worth of pay stubs and W-2s for the last two calendar years. You're also likely to be asked for two years worth of tax returns, along with statements showing the present value of your assets, such as savings accounts, stocks, bonds and retirement funds.
In addition, mortgage officers like loan applicants who've scrutinized their credit reports in advance of a meeting. Under federal law, you're entitled each year to one free credit report from the three large credit bureaus: Equifax, Experian, and TransUnion. See annualcreditreport.com.
In most cases, you'll probably also want to know your credit scores before you apply. Such scores, which draw on data from the credit bureaus, provide lenders with a quantitative measure of a person's credit risk. Most lenders use FICO scores, pioneered by the Fair Isaac Corp.
Typically, you need to pay a fee to obtain your credit scores. One approach is to buy these through the Fair Isaac website: myfico.com. You can also receive credit scores through the credit bureaus. FICO scores range from 300 to 850 - the higher the better.
Berard recommended you make copies of your financial documents. Use a highlighter to identify any "dings" or inaccuracies that show up on your credit reports. And be prepared to tell the lender what steps you've taken to resolve these issues. For example, mention that you've paid the doctor who reported you delinquent to the credit bureaus and have obtained a receipt to prove it.
•Stay in close touch with the lender until your home loan is approved.
Given the tsunami of mortgage foreclosures in recent years, more questions are likely to arise as your file goes through the clearance process.
For instance, suppose your credit reports show you were late in making a payment on a car loan several years ago. Because of that, the processing of your mortgage could be held up until you write a letter to explain the situation.
Berard said lenders appreciate applicants who stay in close touch and are proactive about resolving issues that arise along the way.
"Keeping in touch with the lender by phone or email isn't harassment. It's just a good business practice," he says.
Ellen James Martin, a former real estate editor at The Baltimore Sun, gives advice for anyone buying, selling or financing a home.