This is one in a series of articles related to the sub-prime mortgage mess that dominated the news in 2007 and will likely continue to be big news throughout 2008.
Last week, we took a look at the qualifications necessary to buy a home. The mortgage mess came about because lenders (with the encouragement of the federal government) relaxed their lending standards, thereby opening up the “American Dream” to unqualified homeowners. Talk about an American Nightmare!
In his piece titled, “Taking A Haircut And Losing Your Shirt,” Grant Barrett discussed the subprime mortgage phenomenon by pointing out that the culprit was no-doc or no-documentation mortgages. Playing around with the terminology, Barrett also called these lending instruments NINJA loans or “No Income, No Job or Assets” loans. He wasn’t far from the truth — some lenders basically took people’s words that they had the income and assets to repay their loans, but obviously they did not.
The federal governement is considering regulating “no doc” mortgages thanks to the subprime mortgage mess. Before that happens, lenders have already tightened up their requirements by insisting that borrowers to prove that they have substainable income to support the mortgage. Specifically, lenders are looking at:
- How long you have been in a job and whether you have sustainable income to pay your debt.
- Lenders are likely to contact your employer and verify employment, length of service, and pay.
- Should there be a discrepancy between the amount you state and what your employer states, you could be immediately disqualified from receiving financing.
- For the person who is self-employed, additional documentation will be required. This can include copies of your last three state and federal tax returns, bank statement, investment holdings, and more.
- Although the tighter lending requirements can seem as if they are punishing certain borrowers, they actually serve to keep homeowners from getting in over their heads as well as protecting lenders from getting into the mortgage mess.
If you are considering borrowing money to purchase a home, then using an affordability calculator to determine how much loan you can take on is the first step in the borrowing process. Don’t get in a mess — there is plenty of blame to go around, but you can be part of the solution, not the problem.
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