What you can do as wary lenders tighten the rules
So how hard is it to get a mortgage? Here are some answers to questions prospective home buyers may have about borrowing money at time when a credit crisis threatens to hurt the housing market and economy.
Q What does it mean when companies say they are tightening lending standards?
A Lenders are trying to minimize risk by making it harder to qualify for a loan. Nontraditional loans, like those that do not require a down payment or income verification, are now almost impossible to get, and lenders have dropped the limit on the percentage of gross monthly income that can be spent on monthly payments.
For instance, Bill Mullin, the president of NE Moves, an in-house mortgage lender for real estate giant Coldwell Banker, said that just three months ago, lenders allowed borrowers to spend 50 percent or more of their gross monthly income on payments for jumbo loans -- mortgages over $417,000. Today, the percentage is around 33 percent.
For a conforming mortgage -- below $417,000 -- most lenders won't allow a borrower's monthly payment to exceed 28 percent of monthly income.
Q Are rates being directly affected by the lending market problems?
A Some rates have actually dropped slightly in the recent weeks. This week, the average rate for a 30-year fixed-rate mortgage is 6.625 percent, Mullin said. But rates for jumbo mortgages, which exceed $417,000, are 7.875 percent or higher, he said, an increase of more than half a percentage point in about a month. He said about 19 percent of the company's mortgages are jumbos.
Q I have shaky credit. Can I still get a mortgage?
A Mullin said borrowers with a credit score above 700 won't have much trouble (the highest possible score is 850 and the lowest is 300), but that terms and conditions for those with scores below that will get progressively worse.
Borrowers who do not have good credit still can borrow money, but will be tagged with a higher interest rate and will need bigger down payments. Even those with good credit should expect to put at least 5 percent down.
Those with less than stellar scores should try to get a preapproval from a lender to see what they can qualify for, Mullin said. Lenders will examine the borrower's credit history, which might contain inaccurate information that is lowering their score. By disputing and correcting any errors with the credit bureaus, borrowers might boost their scores and secure better loan conditions.
Q Won't last Friday's rate cut by the Federal Reserve translate into lower mortgage rates?
A The Federal Reserve's decision to cut the discount rate -- the rate it charges banks -- to 5.75 percent from 6.25 percent does not directly influence mortgage rates. They are determined by the yield rate of 10-year US Treasury bonds.
But the discount rate cut does help lenders' finances. The Fed has a Sept. 18 meeting scheduled at which it could cut the benchmark interest rate from 5.25 percent, which would have more impact on mortgage rates.
Q Should I do anything differently before I start looking for a home?
A David Crowley, a Coldwell Banker real estate agent for downtown Boston, said buyers should talk to a mortgage broker before they start looking to find out what they can actually afford to buy based on their circumstances.
He said borrowers should also choose a lender they can trust as well as one they can expect to be healthy and able by the time they're ready to buy. Crowley also said borrowers should have a backup plan and stay in touch with their mortgage brokers to see whether the mortgage they initially prequalified for is still available.
Se Young Lee can be reached at vlee@globe.com. 
