4 Ways the New Credit Environment Differs from the Old

It's probably not necessary to point out that the tumultuous economy has thrown a wrench in the credit standards. Long gone are the flexible lending standards of a few years ago when zero down payment mortgages and bad credit borrowers were still the norm.

Credit score requirements

In the good old days, a good credit score of 680 or higher got you better interest rates and more beneficial terms and conditions. In today's market, lenders are requiring credit scores of 720 or higher to be considered a good credit borrower.

House down payments

The 90s and even the recent 2000s saw more lenient down payment requirements. Some lenders allowed home buyers to finance 100% or more of the purchase price of homes. Gone are the good old days. Now most lenders are requiring most borrowers to put at least 10 to 20 percent of the purchase price down on the home they're buying.

Documentation

No-doc and low-doc loans were a dream--especially for self-employed individuals or those who couldn't show enough income on paper to qualify for a loan. Full documentation loans are back in style, making it harder and harder to obtain a loan.


Debt-to-income ratio

Lenders used to allow you to have up to 50 to 60 percent of your income as debt. Now lenders want your amount of debt below 41 percent of your income.

The lending and mortgage world is no longer like the one we enjoyed a few short years ago. It's tighter, stricter, and harder than it's been in decades. There is still an opportunity for good borrowers to emerge as long as you know what you're up against.