Your Money Minute with Dennis Staaland

What does it take to get a mortgage loan these days?

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Mortgage rates are down!  The stimulus package offers up to an $8,000 tax credit to first-time homebuyers.  Low rates make refinancing or buying a new home more appealing, but what does it take to get a loan these days?

Credit scores now play a huge role in mortgage rates.  You probably need a credit score of 680 to get approved, but with that, you may not get the best rate.  A credit score of 740 is the new benchmark for the lowest possible rates combined with an 80% loan to value ratio for refinancing or at least a 5 to 10 percent down payment for first time mortgage financing. 

Lenders make adjustments to an individual's interest rate based on their credit score and loan to value ratio.  Private mortgage insurance companies can have their own, even stricter guidelines which will affect what you can borrow or what you can purchase.  For example, mortgage insurance companies in Illinois have declared Winnebago County a restricted market.  That means starting in March, 10% down will be a must for homebuyers.

So what alternatives are there for less-qualified borrowers?  Mortgages insured by the Federal Housing Administration offer easier qualification standards. Also credit unions and community banks can be resources.  Though they typically sell mortgages to Fannie and Freddie and must meet their guidelines, they also keep loans on their books. That means they have more freedom in deciding whether to take on greater risk even as they practice their typically conservative due diligence.