It’s a different story in today’s housing market. The economy has slowed down, and the free market is correcting the housing sector’s inflated success. Qualifying for a mortgage is harder than it was three years ago, but it’s not impossible

1. Inspect All Three of Your Credit Reports. Pull your credit reports from Equifax, Experian, and Transunion. Make sure that all of the information is accurate. If you find an account that doesn’t belong to you, submit the necessary form to all three credit reporting agencies to dispute the account.

2. Improve Your FICO Score. Unfortunately, mortgage lenders heavily weight your lending eligibility based on a score that doesn’t accurately measure your financial stability. The FICO score only measures your ability to repay a loan. Improve your score by paying down debt, paying all of your credit accounts on time, and keeping open accounts with a $0 balance.

3. Save for a Down Payment. Buying a house with a 5% to 10% down payment shows you are serious about becoming a homeowner. If you’re looking for a Federal Housing Administration loan, you’ll need at least a 3% down payment. Mortgage lenders are more skeptical about doing 100% financing, because many of these loans are the ones going into default.

4. Increase Your Household Income. Mortgage lenders want you bringing in enough money to realistically pay for the loan. Two income families qualify easier than one income families. Pick up a second job, become a two income family, or start a home-based business.

5. Choose A Realistic Budget. The rule of thumb is a mortgage payment that is 25% of your monthly household income. Choose a price range that fits this criteria. If you make $4,000 a month, then choose a price range that gives you a mortgage payment of $1,250. The term “house poor” comes from people that spend the majority of their income on a mortgage payment. These are the same people that end up filing for foreclosure. Mortgage lenders will tell you that you can afford more than 25% of your household income, but they are the same people that helped the housing market crash.

6. Defer Your Student Loan Repayment. You get six months to defer your student loans before you need to start paying them back. If your student loans are deferred, the mortgage lender doesn’t need to include the debt in your debt ratio.

7. Stick with One Employer. Mortgage lenders like stability. Stick with the same employer for more than two years.

8. Negotiate a Price Lower Than the Appraised Value. The mortgage company will send their own appraiser out to assess the house. If you negotiated a purchase price that is lower than their appraised value, you can consider it instant equity in the eyes of the mortgage lender. You can check out Zillow.com to see the approximate value of the house.

Now is the time to buy, but lenders will no longer hand out loans to anyone. Don’t let this discourage you. Take this time as an opportunity to fine tune your personal finances. Don’t believe the fallacy that you need perfect credit to qualify for a loan. Mortgage companies are closing the doors every day. Countrywide was bought by Bank of America, and IndyMac Bank had their assets seized by the federal government last week. Lenders are looking for responsible borrowers. Your income and your credit history are the most important factors to determine if you qualify for a loan. Once you’re qualified for a loan, you can finally start the fun part of buying a house.

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