What You Need to Qualify for a Mortgage

In recent years, practically all it has taken to qualify for a mortgage loan is a heartbeat and a signature.

But a rash of foreclosures and delinquencies has caused mortgage lenders to severely tighten their standards. They are turning away throngs of mortgage applicants who, just three or four months ago, would have been shown where to sign to close a deal.

Lenders have become more cautious because they can no longer be sure of unloading dicey mortgages on big investors. That means they could get stuck holding them on their books.

"The open spigots of liquidity have dried up," says Keith Gumbinger, vice president of HSH Associates, a publisher of financial data based in Pompton Plains, N.J.

While all lenders have become more cautious, the biggest turnaround has been in the subprime and jumbo mortgage markets. The subprime markets lend money to folks with less-than-perfect credit while the jumbo market serves people with good credit who want to borrow more than $417,000.

Source: BankingMyWay

However, if you have good credit and want a smaller mortgage, you should have no problem qualifying. Banks are still willing to make these so-called "conforming" loans because they know they can sell them to Fannie Mae FNMand Freddie MacFRE.

For years, the subprime and jumbo markets attracted hordes of borrowers with creatively structured deals intended to make mortgages more accessible and seem more affordable. For example, zero-down-payment loans were common, as were loans promising ultra-low interest rates for one or two years before the rates would shoot up.