Lending standards have changed dramatically and consumers with good credit who have paid their mortgage for 10 years on time can be affected by these new changes. Therefore, there are some things you need to know about today's lending standards.
Even if you've been in good standing with the same bank or mortgage company for several years, when it comes to buying a home or refinancing an existing mortgage, your bank is going to treat you like a new customer right off the streets. New banking laws require that you go through the entire process whether you are a new customer or an existing customer of 10 or 20 years. Even if you have an excellent record with your bank, you should be prepared to be treated like a new customer. There is a slew of new paperwork and guidelines to administer.
If you are an existing customer with your bank, don't feel like you're being singled out. It's simply how the residential mortgage industry has changed since the big meltdown. Now, the amount of mortgage products offered to consumers has gone down, while the required proof of income for borrowers has increased.
While lending standards have pretty much gone back to the way they were 10 years ago, it has been a little jarring for many borrowers who are used to the "go-go" years when lenders asked for little proof of a borrower's liabilities, income and even enticed them with exotic loans with variable interest rates.
The underwriting process for borrowers is currently being handled by three government entities that dominate the mortgage market, which include Fannie Mae, Freddie Mac, and the Federal Housing Administration. It is very unlikely for a bank to issue a mortgage if it's not guaranteed by one of these three entities these days.
Pre-qualification is another big issue. Just a few years ago, you could find your dream home and then worry about financing. Now you need to get pre-qualified for a loan before you begin your home search.
The more educated and informed you are when it comes time to buy a home or refinance your existing home, the better off you will be.
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