You hear a lot of complaints these days that mortgages have become impossible to get. Real estate agents and various media pundits are the main dispensers of this wisdom. But is it true?
Well, back in June DBRS, a credit rating provider kind of like S&P, provided a really nice summary of what has changed in underwriting guidelines for prime mortgages since 2007. Here are some of the highlights:
- The maximum loan to value ratio has gone from 100% to 80%
- The maximum debt to income ratio has gone from 38% to 33%
- The minimum credit score has gone from 620 to 680
- Gift as a source of funds is no longer allowed (Don't understand this one since this has not been an issue for us)
- Borrower is no longer allowed if they don't have a credit score
- Required reserves has gone from 2 months to 12 months
- Employment must now be verified within 10 days of closing vs. 30 days previously
- 2 years of W2s must now be provided instead of just 1 year previously
As DBRS sees things:
Based on the minimum FICO score, maximum loan-to-value (LTV) and the requirement that a foreclosure, short sale or deed-in-lieu be at least seven years old, it is likely that most of the U.S. population will not be able toqualify for a mortgage any time soon. Consequently, DBRS expects the housing recovery to continue to lag for many years to come unless there is a loosening of underwriting criteria by the major lenders.
So, there's no arguing with the facts. It's definitely harder to get a mortgage than it was during the real estate bubble. However, in reality these mortgage lending standards are pretty reasonable and no different than they were before things got crazy. We're just back to the old normal.
Personally, I don't think we've had any deals fall through in the last year or two because a buyer couldn't get a mortgage - of course, we make sure that all buyers have been pre-approved before we get to far down the road with them. We have had a few appraisal problems but that doesn't reflect upon a buyer's ability to get a mortgage. But DBRS' assessment is probably correct in general. There are a lot of people out there that won't qualify for a mortgage any time soon and that will keep the real estate market from bouncing back any time soon.