Moving Up? Home Loan Rules Have Changed

Think you’re a savvy home buyer because you bought a place five to 10 years ago and now you’re buying again?

Well, surprise. The rules of the game are changing, especially when it comes to getting a home loan. You need to know the new rules to make the best possible decisions on financing and home selection.

Real estate professionals offer this brief refresher course for second-, third- and fourth-time buyers who haven’t been in the market for five years or longer:

No. 1: Don’t overestimate your tenure in the next home.

The median time the average homeowner now remains in a property has stayed at about six years, the same tenure as in 1987, according to the National Assn. of Realtors.

Still, surveys show that the gulf between buyers’ expectations of how long they will stay--compared to their actual tenure--is widening. And if you overestimate your tenure, you could underestimate the need to buy a salable home.

Home purchasers are becoming fussier every year, and it’s critically important that you take that into account when you make a move-up purchase, said Conetta Mannello, who sells property through the Prudential real estate chain. “Buyers are more demanding now--no matter what income level,” she said.

In evaluating your that housing needs, you may conclude you don’t truly need a two-car garage or more than one full bathroom. But if you fail to take current preferences into account, you could make a poor investment decision, Mannello cautions.

“Move-up buyers are looking for all the amenities in a home,” said L. John Lute, a broker-associate for the Century 21 chain.

The most salable homes have not only a two- or three-car garage and multiple bathrooms but also a large contemporary kitchen and a spacious family room. They’re located in pleasant low-crime communities with excellent schools.

Although few can afford the perfect home, it’s good to get as close to the target of contemporary preferences as you can, Lute said.

In only one category--the amount of land surrounding a home--are many buyer’s expectations lower than they were five to 10 years ago, Lute said.

In recent years, many two-income families have become unwilling to bother with a large yard, Lute said. Why? “Because time-wise they’re just too hurried. People are in high gear all the time now,” he said.

No. 2: Wake up to the new rules on mortgage lending.

If you last bought a home five to 10 years ago, you may not realize that lenders are starting to use a new system for classifying mortgage applicants, noted Patty Wochele, a loan officer for Norwest Mortgage, which lends throughout the country.

Called “credit scoring,” the new system is designed to hasten the loan approval process through a mathematical formula indicating the quality of your credit. Chances are you probably already have a credit score, said Keith Gumbinger, a vice president at HSH Associates, the national mortgage information publishing firm.

“You’re wearing a number, whether it’s on your sleeve or not,” he said. Just as your score on a college entrance exam can be a key factor affecting your application to Harvard, so can your credit score influence your ability to quickly obtain mortgage approval.

“It’s great if your credit score is high; you can fly right through the system,” Gumbinger said.

But if the new computerized mortgage approval system coughs on some of the data it receives about you, that could make it harder for you to get a home loan. And some rather innocent financial actions of yours could make the computer cough.

Suppose, for instance, that you have a number of open credit card lines, most with a zero balance. That could raise a red flag in the newly automated system, slowing your application and requiring you to provide an explanation.

Or suppose that you were recently shopping for a new car and had your credit reviewed by a number of car dealers. Even if you decided not to buy a car this year, all those “credit inquiries” could hurt your chances for easy loan approval.

You may never be able to fully decode the credit scoring system, but it’s important to understand how a few missteps could jeopardize your chances for the best possible outcome, said Norwest’s Wochele.

She advises would-be home buyers to talk to a lender before they make any financial move before applying for a home loan. That way you can assess whether the move would be positive or negative in light of the new credit scoring system.

No. 3: Take advantage of competition in today’s mortgage market.

If you last bought a home or refinanced five to 10 years ago, you may not realize just how fiercely competitive the mortgage market has become.

Lenders used to expect you to appear at their offices. Now they’re willing to meet at a time and place convenient for you, even at your home or office. They’ll also accept weekend and evening appointments, said Lute, the Century 21 broker-associate.

“They’d probably meet you at midnight if you wanted,” he said.

Indeed, many lenders, such as Norwest, are now capable of approving (and processing) a loan application without ever meeting the borrower, Wochele said. Credit approval can now be granted within 48 hours after an application has been received, she reports.

But there’s both good and bad news in the current trend toward ranking borrowers. Those with strong credit histories and traditional jobs can sail through to a low-rate mortgage. But automation increases the odds you’ll be placed in the wrong slot unless you erase or explain negative credit data collected on you, Gumbinger said.

Today’s lenders are moving toward a caste system for pricing mortgages that’s based on a borrower’s credit quality, which the industry calls “loan-level pricing.”

The good news is that people with serious credit blemishes can get mortgages from Main Street lenders, albeit at a higher rate. And even the so-called “subprime” lending market is now more competitive in pricing. “If you have a pulse, you can get a mortgage today,” Gumbinger said.

Distributed by Universal Press Syndicate.