Recent changes in our economy have forced large banks such as Fannie Mae and Freddie Mac to have higher standards regarding mortgage loans. Here are some things you need to look out for if you’re trying to get a loan in today’s market.

• The house needs too much work. A lot of properties these days are foreclosures owned by banks and many are in need of repair. If a house is in really bad shape, it can be tough to persuade a lender to give you money to purchase it. Broken windows, defective appliances, roof leaks and serious water damage can all cause a lender to bail.

“A lot of deals just fall apart after appraisers examine the homes. Some sellers have gotten shot down so many times because the buyer couldn’t get a mortgage that some homes are put on the market as ‘all cash.’ In essence, the sellers won’t consider buyers who need mortgages to purchase their homes” says Dick Lepre, a senior loan officer with RPM Mortgage.

• The appraisals came up short. Sometimes during a ‘housing bubble’ an appraiser would have to decide if a home was worth less than the price a buyer and seller agreed upon. These days, appraisers are held to high standards and sharply limit communication between appraisers and lenders. So the appraisal on the home you want to buy may fall short of the agreed-upon selling price. You may be able to nudge an appraisal a bit by showing that there are better “comparable sales” available tha the ones the appraiser used.
• You have too much debt. Lenders look at how much of your income will go toward housing expenses (mortgage, property taxes and insurance) as well as how much you spend on other debt payments. The total amount of your income that can be eaten up by these expenses can vary by the lender and even by the day. The mortgage industry still isn’t as conservative about debt as it should be. The bottom line is-if your projected housing-and-debt ratio exceeds 40% of your income, you should think twice about buying a home-not because you won’t get approved, but simply because you’re carrying too much debt.
• You’re self-employed and your income has declined. To get a mortgage you need to submit the past 2 years tax returns. If your 2008 income was lower than your 2007 income and you’re a W-2 wage earner, lenders use the lower figure to decide how big a mortgage you can get.
• You recently started being paid on commission. Companies eager to cut costs have been switching some of their staff from salaries to hourly wages to commissions. That can complicate your mortgage application because lenders won’t count commission income unless you’ve been earning commissions for at least 2 years.
• There’s a problem with your tax returns. These days, lenders order transcripts of your tax returns you filed with the IRS. Some problems that come up include: unreimbursed employee expenses, second-home expenses, a too-small payment for estimated taxes, or no transcript.
• You can’t get private mortgage insurance. Technically, you can still get approved for a loan equal to up to 97% of a home’s appraised value. PMI companies are even picker now than they were before. If you’re a ideal borrower-credit scores of 720 or above-with a debt load below 40% of your income and several months worth of expenses in the bank-you might get approved for private mortgage insurance (PMI). The bottom line is-the bigger the down payment the more options you have.
• The lender doesn’t like your condo association’s finances. Mortgage lenders are enforcing guidelines on condo and co-op purchases that used to be widely ignored. Some new restrictions may include-the 10% ownership rule, the fidelity bond, or cash reserves. The ownership rule – if anyone owns more than 10% of the units in a building, you may not be able to get a loan. Lenders worry that if this big owner defaults, the remaining owners won’t be able to pay for proper maintenance. The fidelity bond-associations are supposed to buy a bond against theft by management company employees. The actual costs associated with increasing the bond is actually only a few hundred dollars a year, but board members may not understand the importance of this requirement and resist coughing up the extra cash. Cash reserves – in condos should equal 60% of the association fees collected over the year to make sure sufficient funds are available for needed maintenance and repairs.
• You fail to stay on top of the paperwork. Be prepared to prove everything and anything. Lenders are inundated with paperwork especially now and you don’t want to fall short in providing a document and get put back at the bottom of the stack.

Source: www.moneycentral.msn.com