Qualifying for a Mortgage in a Tough Economy

Getting a mortgage has become increasingly challenging in this difficult economy. One recent survey showed that 67 percent of those who applied for a mortgage found it more difficult. According to the New Jersey Society of Certified Public Accountants (NJSCPA), although banks now may have stricter lending rules, it is still possible to qualify for a mortgage. Here are a few steps that may make it easier:

Determine How Much Your Can Afford
Before you apply for a mortgage, get a realistic idea of how much you can afford to pay. The American Institute of CPAs 360 Degrees of Financial Literacy website provides calculators that you can use to determine potential mortgage payments. Visit, www.360financialliteracy.org and click “Home Ownership.” If you apply for a mortgage that fits within your budget, you’ll be more likely to have your mortgage application approved.

Put Your Documents in Order
Lenders will want to know a great deal about your financial history before they give you a loan, so it’s important to organize all the documents you’ll need for your application. You may be asked for pay stubs or other proof of income, tax returns and information on other debts, such as credit cards or auto loans. The application process will be faster and smoother if you have this documentation beforehand.

Use Your Existing Credit Wisely
It’s a good idea to have some credit — whether it’s a credit card, auto loan or other debt — but don’t overdo it. How much is too much? As a general rule, you should use no more than 25-30 percent of your available credit. So, if you have a $2,000 limit on a credit card, don’t carry more than a $500-$600 balance on that card.

Clean Up Your Credit Record
After the wave of loan defaults and foreclosures that have taken place in recent months, lenders now scrutinize loan applications to ensure that borrowers can afford to pay off the debt they are taking on. In particular, banks are looking for people with good credit scores. Your credit score is based on your financial situation and how well you have managed your credit in the past. If you’re uncertain about your ability to get a mortgage, check your credit report from one of the three national credit bureaus. If your score is low, you may have trouble getting a mortgage or face stricter loan terms.

Repair Your Credit
There are two important steps you can take to improve your chances of obtaining a mortgage. First, pay off some of your existing debts. If you have several credit cards and charged the maximum amount on some or all of them, lenders will be more reluctant to give you credit. It’s also important to get into the habit of paying your bills on time. Both of these simple steps can raise your credit score and put you in a better position to get a loan.

Your Local CPA Can Help
Getting a mortgage can be a tough process these days. That’s why it’s a good idea to get advice from your local CPA. He or she can advise you on budgeting for your new home and improving your chances to qualify for a mortgage.

Consult him or her on all your family’s financial questions. If you don’t have a CPA, you can easily locate one online using the NJSCPA’s free, online Find-A-CPA service. Just go to www.findacpa.org, and in a few clicks you can locate a highly qualified professional who can assist you.




Produced in cooperation with the AICPA
©2009 The American Institute of Certified Public Accountants

February 1, 2009