Survey finds tougher loan requirements

It's no secret that banks have raised the bar for borrowers who want to get a new home loan. The fact is that today's requirements may be significantly more challenging, regardless of whether you want to buy a home, refinance your current mortgage or take out a home equity loan or line of credit.

Yet these tougher requirements definitely don't mean that you won't be able to get a loan. Plenty of borrowers have obtained new loans this year on good terms and often at historically low interest rates.

Banks tighten across the board
Lenders use the phrase "tighter credit standards" to describe their own tougher requirements. And indeed, most banks have tightened their credit standards this year.

A recent Federal Reserve survey of senior loan officers found that 62 percent of the banks surveyed had tightened their standards for prime residential mortgages, and even higher percentages had tightened their standards for non-traditional and subprime home loans, and home equity lines of credit. None of the banks that were surveyed had loosened credit standards for these types of home loans.

Documents may help you qualify
To obtain a loan today, you'll probably have to jump just a little higher than you would have had to a year ago. You'll probably have to fill out more paperwork, and you'll probably be asked to hand over more documents, such as W-2 forms, paycheck stubs and income tax returns, to demonstrate your creditworthiness.

To qualify for a loan at a favorable interest rate and on favorable terms, you'll also need an acceptable credit score, and the lender likely will require an acceptable appraisal of the home. You may have more loan choices if your employment has been steady for several years, your credit is unblemished, and you are able to make a larger down payment to buy a home or you have some equity in your current home if you want to refinance.

Tighter credit standards mean it's important to shop around and compare loan offers. You may even be pleasantly surprised to find out you're better qualified for a loan than you thought you were.

The bottom line is that tighter credit standards should be a welcome trend in home loans. That may seem counterintuitive, but the fact is that tougher requirements protect borrowers as well as lenders and help to ensure that you're financially able to make the monthly payments on your new loan. Always be sure to read your loans documents before you sign them and ask questions about any aspect of your loan that you don't understand.


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