New Lender Guidelines to Protect Against Home Foreclosures

By Sheryl Landrum
Mortgage Credit Problems Columnist

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Many investors have backed away from sub-prime home mortgages as the high rate of mortgage foreclosure risk proves these loans are no longer good investments for investors to invest in. In order to attract business and to reduce the risk of home foreclosures, most lenders are tightening their guidelines on new home loans. What changes can we expect when qualifying for a new mortgage?

Higher credit scores are now required for stated income borrowers. 680 was the FICO score required for most stated income borrowers prior to the new guidelines; now, in an effort to stop the high rate of mortgage foreclosures, the minimum credit score for a stated income borrower is 700.

Investors are now requiring more equity to be left in homes to reduce the rate of home foreclosures. 100% financing is going to be extremely difficult, if not impossible, to qualify for as long as the foreclosure rate is up. Borrowers with equity in their homes are more likely to avoid foreclosure than those who have none.  Many lenders will now require borrowers who wish to take out second mortgages, or home equity lines of credit, to be fully documented with credit scores of 700 if they want to borrow more than 89.9% of their home's value.

The combined loan to value limit is also being raised on investment properties. Investment properties are also at higher risk of foreclosure than owner occupied properties and new lending guidelines will not allow a combined loan to value of over 89.9%

These are some of the changes we are seeing in the mortgage industry; if the rate of home foreclosures continues to climb, we can expect more restrictions to follow.

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