PhotoMortgage rates are near historic lows. Home prices have crashed from their highs four years ago. It seems now would be a great time to buy a home, especially since rents are rising.

There's just one problem. Qualifying for a mortgage is harder than it has ever been.

Back during the housing boom, mortgage brokers would write a mortgage often for little or no money down. If you had a checkered past when it came to employment, no-documentation loans were available. You told them how much money you made and they took your word for it.

As a result many consumers purchased homes they really couldn't afford. It was one of the catalysts of the credit meltdown.

Cautious lenders

Now lenders are cautious -- maybe overly cautious. According to Kiplinger, they want to see the “three Cs.” They look closely at your credit history, they examine your capacity to repay the loan, and verify your collateral.

That means to buy a house, you need a strong credit score -- 720 or above. You need a good job and the prospect that it will continue. And you need to bring a large chunk of cash to the settlement table. In most cases, lenders want borrowers to put down at least 20 percent of the purchase price.

With the average home costing over $180,000 that can be a lot of money. Just a few years ago buyers could put down five percent or less. As late as 2007 some lenders were offering loans at 105 percent of the purchase price. Those days are long gone.

Even if you happen to have 20 percent of the purchase price in cash, that's no guarantee you will be approved for a mortgage. The lender wants assurances that you will be able to continue making the house payments each month. They look at your present job and what your prospects are for the future.

They also look at the house itself. Let's say the house you want is listed for $225,000 but you negotiate the price down to $209,000. You may feel like you have gotten a great deal.

Tougher appraisals

But then an appraiser looks at the house, as well as comparable houses in the neighborhood that have recently sold. The appraiser comes back with a market price of $199,000. Suddenly the lender is unwilling to write a mortgage for $167,200, 80 percent of the purchase price.

Before considering the purchase of a home, there are three things you should do. First, pay down credit card and other debt. That will reduce the amount of money you can borrow.

If you are thinking about financing a new car, wait. A car payment will reduce the amount of money you can borrow for a home.

Take steps to improve your credit score. Good credit not only will help you get the loan, a high score will help you get the lender's preferred rate.

Get a real estate agent

Finally, before you start your search for a home work with a real estate agent -- what the industry calls a “buyer's agent.” It costs you nothing. If you buy a house, they spit the commission -- paid by the seller -- with the listing agent.

Even though it costs you nothing, you have someone looking out for your interests. They know the neighborhood, they know whether the property is overpriced, they know the ins and outs of financing and they can guide you through the process. Generally a good buyer's agent can help you shop for the best mortgage, something many homebuyers simply don't do when they go it alone.

"Deciding on a mortgage is likely the most important financial decision consumers will ever make, yet borrowers are more often than not taking the first offer that comes their way, failing to fully capitalize on low rates," said Doug Lebda, founder and CEO of LendingTree. "It is important for borrowers to understand that they have the power to choose which loan and which lender to use. It is acceptable to negotiate with lenders and to walk away if you are not fully satisfied. Consumers need to be engaged in the mortgage process to secure the best deal."

And a good buyers agent will do a lot of that work for you. They can also streamline your search, showing you just the homes that you can afford and that meet your criteria.

It's a lot more difficult to purchase a home than it used to be. Buyers need all the help they can get.

Buying a house?

Protect it with a home warranty. Get matched in our short quiz.

    Share your Comments