The Federal Reserve confirmed what most of us already knew -- getting qualified for a "prime mortgage" is increasingly more difficult. In a quarterly survey of 84 banks, 75 percent of respondent banks tightened mortgage guidelines over the last 3 months for the most qualified of home loan applicants.
"Prime" is a vague term when it comes to mortgages, but, historically, a prime borrower is one that can document:
- A well-documented credit history
- Very high credit scores
- Very low debt-to-income ratios
Historically, banks bent over backwards to lend money to this class of borrower. Today, they're thinking twice.
The chart's steep ascent reinforces that members of all tax brackets face consequences from the current credit market turmoil. And, although some corners of credit looked poised to recover -- interbank lending, for one -- the mortgage market is yet unaffected and should be among the last to thaw.
All prospective home buyers should prepare for the likelihood that mortgage guidelines continue to toughen before they start to ease. Mortgage applicants on the cusp of being approved today will almost certainly be turned down for a mortgage in 2009.
Owning real estate can require a tremendous amount of advance planning and, sometimes, looking at the past is the best way to prepare for what's coming ahead.
According to the Federal Reserve's survey, what's coming ahead is more mortgage application scrutiny.
