Low-cost home loans are tougher to get

April 01, 2007|By Carolyn Bigda | Carolyn Bigda,Tribune Media Services

Not too long ago, ads for "zero-down" and "low introductory rate" mortgages were as common as credit-card offers. Now, with more loans going into default, lending standards are tightening.

Loans with low down payments and adjustable interest rates still can be had.

But the borrowers who need those loans, including many first-time buyers, will have to make a stronger case.

Here's how to proceed:

Improve your credit score.

Most of the lending pullback has occurred in what is called the subprime market, or loans made to borrowers with a higher risk of default. It's not hard to see why lenders are growing more cautious: The latest survey from the Mortgage Bankers Association shows that delinquency rates are rising, particularly among subprime loans.

Factors such as your FICO credit score, income, debts and savings determine whether you're considered a subprime or a prime borrower.

Prime borrowers generally qualify for the most competitive interest rates and flexible loan terms.

As a first-time buyer, you might not have a cushy income or savings account. You also might be paying down credit card debt and student loans.

So beefing up your credit score is key. You want to aim for a score of 680 or higher, said Keith Gumbinger of HSH Associates, which tracks mortgage data. Scores range from 300 to 850.

Start whittling down credit card balances and pay your bills on time for at least six months before you apply for a loan.

Start saving.

Another sticking point could be the down payment.

During the housing boom, lenders eased up on down-payment requirements, sometimes financing 100 percent of home prices. Today, those loans are not as prevalent.

Buying a home with no money down is a risky proposition. Now that home prices have stalled or declined, you could end up owing the bank if you had to sell.

And you don't have to save much to get better financing.

Consider first-time buyer programs.

Some loan programs are directed at first-time buyers, though generally you have to makes less than your community's median income.

State and federal agencies, such as the Federal Housing Administration (www.hud.gov), are an option You also can check with a credit union.


Carolyn Bigda writes for Tribune Media Services

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