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Then & Now: Prime Mortgage Requirements
One effect of the housing market’s collapse has been tougher requirements for prime mortgage loans. While there have been some hints in recent months that lenders are loosening these strict requirements, there remains a wide gulf between previous and current requirements.
Below are a number of key differences between 2007 and 2011 prime mortgage loans, according to DBRS, a national company that specializes in credit rating opinions.
- In 2007, it was possible to receive a loan for the full value of a house. By 2011 this number had been reduced significantly. Four years later potential home buyers could only receive a loan for up to 80 percent of a home’s value.
- In 2007, a borrower could receive a mortgage with a FICO credit score of 620. By 2011 this number increased to somewhere between 680 and 720.
- A major change was the income to debt ratio potential borrowers needed. In 2007, a borrower could spend no more than 45 percent of their income on recurring debt. In addition, a potential borrower could only spend 38 percent of their income on recurring housing costs.
- In both cases, the percentages of debt to income changed. In 2011, a borrower could spend up to 38 percent of income on recurring debt. In addition, up to 33 percent of a borrower’s income could go to housing expenses.
- You’ll need an IRS Form 4506, otherwise known as your tax return. While it was optional in 2007, it’s required in 2011.
- Everyone loves gifts. Unfortunately, borrowers can no longer use a gift as a source of funding for a house. This is a change from 2007 when this was possible.
- Each year, you should receive a W-2—a form that details how much you made that year—from your employer. In the past you needed the previous year’s copy of this document. In 2011, you needed two year’s worth of the form.
- In 2007, you needed to verify your job within 30 days. Four years later this time frame was cut by two thirds. You’ll have to verify your job within 10 days.
It’s now required to give money to a third party for escrow.