About real estate: What buyers should expect when seeking a mortgage today

Posted6/1/2012 5:53 AM

Banks gradually have been tightening their lending requirements. Buyers who know what's expected and take a few basic steps can improve their chances of getting loan approval.

Q. We're hoping to purchase our first home later this year, but we've heard from friends that banks have tightened up their lending requirements. Is this true? What will we need in order to get a mortgage?


A. Banks have been raising their lending standards gradually since the housing market headed south about six years ago and the banking crisis ensued. The lender you choose still will focus on your "three Cs" -- credit history, capacity and collateral -- but with much greater intensity than in the past.

On the credit side, you'll need a much higher score than you would have before to get the best deal, so make sure that you aren't late with any debt payments between now and the time you apply for the loan. In the capacity area -- your income, savings and investments -- the lender may worry that any consistent or large withdrawals suggest that you're barely making ends meet, and may even research your chosen profession or the financial condition of your employer to predict the likelihood that you will keep your job. Avoid any big-ticket purchases or a fancy summer vacation, at least until your purchase closes.

Also expect tighter requirements when it comes to collateral, which factors in the size of your down payment and the appraised value of the home. Many lenders are demanding larger down payments, and appraisals are more conservative than when the market was red-hot, so save up as much as you can. Also, ask to accompany the appraiser when he or she visits the property so you can point out any special attributes of the home that might otherwise be overlooked.

Of course, you will have to provide the usual array of paper documentation. That usually includes copies of your two most recent tax returns or W-2 forms, at least three months of your most recent bank and brokerage-house statements, and a copy of your most recent year-to-date pay stub.

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Q. Do real estate investors need a real estate sales or broker's license before they can buy a rental property?

A. Most don't, but some do.

You certainly don't need a license if you buy the property yourself and only your name will go on the title, assuming that you won't be sharing in the commission paid by the seller.

It gets a bit stickier if you buy a rental with a group of investors. You would then need a license if you would get a piece of the sales commission. You also would need a license or need to be an attorney if you merely agree to collect monthly rent checks on behalf of the group.

Q. I know that you occasionally write about paranormal activity inside a home. For the past few weeks, the lights in our longtime home have started flickering or even turning off by themselves, and sometimes we get an eerie tingling sensation when we touch the walls. Do you think our house has suddenly become haunted?

A. It's possible. But a more likely, and potentially more dangerous, possibility is that your house has developed some serious wiring problems.

Faulty wires can easily short out, shocking an owner or causing a fire. Symptoms include flickering lights, a stinging or tingling sensation when a wall or appliance is touched, or fuses that frequently blow out.


It's important that you call a professionally licensed electrician immediately. If you're lucky, you only will have to replace two or three junction boxes and their related components. A more costly proposition would be if the entire fuse box must be replaced: If the home has old-fashioned glass or other outdated fuses, the electrician likely will recommend that you replace them with modern "arc-fault circuit interrupters" that shut down electricity flow if they detect danger.

In a worst-case scenario, you'll have to rewire the entire house. That's an expensive job, but you may not have any choice -- especially if the home is decades old. Get at least three bids on the work if you believe that a complete rewiring is your only option.

• For the booklet "Straight Talk About Living Trusts," send $4 and a self-addressed, stamped envelope to David Myers, P.O. Box 4405, Culver City, CA 90231-4405.

2012, Cowles Syndicate Inc.

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