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Getting a Mortgage Loan in the 2009 Economy

by Brandon Cornett

Are there new rules for getting a mortgage loan in the 2009 economy? Yes and no. The guidelines that have applied to loan qualification in the past will apply in 2009 as well -- but they'll be more strictly enforced.

To understand the reasons for this, we need to hop into our time machine and examine the events leading up to the 2009 mortgage and housing market.

In the mid to late 1990s, it was a lot easier to get a home loan, even if you had a bad credit score. That's because a lot of lenders were offering the now-infamous subprime mortgage loans. There are home loans given to borrowers who don't qualify for the best interest rates because of bad credit scores or other factors (i.e., "subprime borrowers").

Many of those mortgages were adjustable rate (ARM) loans with low "teaser" rates for the first few years. When the rates eventually adjusted, however, many of the homeowners found they could no longer afford their monthly mortgage payments and thus went into foreclosure. When I say many homeowners, I'm talking about record-breaking numbers. Between 2006 and 2000 there were well over a million home foreclosures in the United States, especially in states like California, Nevada and Florida.

Back to the Present - The 2009 Mortgage Scene

So where does this leave us now? What does all of this history mean to home buyers and mortgage shoppers in the present?

For one thing, the term "subprime lender" is practically a dirty word in the 2009 economy. There are a lot of negative connotations associated with the practice of subprime lending, and rightfully so. In fact, there aren't many of those lenders around anymore. Some collapsed during the mortgage meltdown of 2008 and others were reorganized into more traditional lending operations.

In other words, 2009 home buyers who have bad credit will have fewer options than they might have had in the past, in terms of getting a home loan. Generally speaking, mortgage lenders today are requiring borrowers to have better credit scores, more substantial down payments and better debt-to-income ratios — especially if those borrowers want to qualify for the best interest rates on a loan.

A "Model" Home Buyer in the Current Economy

Enough history. Here's how you can increase your chances of getting qualified for a mortgage loan in the 2009 economic landscape (and getting a good interest rate on the loan as well).

• Maintain a high credit score. The higher the better. This will help you qualify for a loan with a good interest rate, and that means a smaller mortgage payment each month -- what every home buyer wants!
• If your credit is bad, dedicate yourself to raising your credit score in 2009. There are plenty of resources on this website to help you learn how.
• Start reducing some of your debt, starting with those high-interest credit card accounts. This helps you in two ways. By using less of your available credit line, you are improving your "utilization ratio," which in turn can help improve your credit score. You are also improving your debt-to-income ratio, another mortgage qualification criteria.
• Start saving money. The more you can save between now and the time you apply for a mortgage loan, the better off you will be. For one thing, you will need money for a down payment on the home. You also need some cash to cover the closing costs associated with your home loan.

These are things that will help you qualify for a mortgage loan in the 2009 economy. Here are some additional precautions you need to take for yourself.

• Study the different types of mortgage loans. Many of the homeowners who got into foreclosure trouble over the last few years did so because they failed to understand how their ARM loans worked. Learn the pros and cons of fixed-rate versus adjustable-rate mortgage loans, and choose the right one for your home buying situation.
• Buy within your financial means. Don't let a mortgage lender tell you what you can or cannot afford to pay each month. The only thing they can tell you is what you qualify for -- not what you can realistically afford. Determine your home buying budget for yourself, and do it before you start talking to lenders.
• You can save yourself time and energy by applying for a home loan online. Reputable companies like LendingTree can help you get offers from multiple lenders at once, which can really speed the process up. Visit our online quotes page to get started, or click on the link provided below.

I hope you have enjoyed this 2009 mortgage loan guide, and I hope it helps you in your home buying efforts. Here are some related articles and resources you might want to check out:

Related articles:
How to Raise Your Credit Score in 2009
The Subprime Mortgage Crisis Explained
What You Should Know About Credit in 2009

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About the Author
Brandon Cornett is the publisher of the Home Buying Institute.