How to Shop for a Mortgage Today

Lenders grow more conservative after the housing bust.

The troubles in the subprime-mortgage market have led to tighter standards for all borrowers. Buyers and refinancers with sterling credit records won't feel the pinch. But lenders have reined in their underwriting rules for borrowers with less-than-perfect credit and for those seeking nontraditional loans that require a low initial payment or little verification of income. Now, rising home prices can no longer serve as the ultimate guarantor of a home loan.

How will tighter underwriting standards affect me? Buyers stretching to afford their first home will be hit hardest. The days of heroic efforts to help first-time buyers "afford" a home are over, says Bill Hampel, chief economist for the Credit Union National Association. When borrowers apply for an adjustable-rate mortgage, lenders will approve or reject them based on the fully indexed interest rate and higher monthly payment, not a "teaser" rate and low initial monthly payments. New disclosures may also add to the pile of paperwork you sign at closing.

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Patricia Mertz Esswein
Contributing Writer, Kiplinger's Personal Finance
Esswein joined Kiplinger in May 1984 as director of special publications and managing editor of Kiplinger Books. In 2004, she began covering real estate for Kiplinger's Personal Finance, writing about the housing market, buying and selling a home, getting a mortgage, and home improvement. Prior to joining Kiplinger, Esswein wrote and edited for Empire Sports, a monthly magazine covering sports and recreation in upstate New York. She holds a BA degree from Gustavus Adolphus College, in St. Peter, Minn., and an MA in magazine journalism from the S.I. Newhouse School at Syracuse University.