Dream of homeownership is becoming harder to obtain

If you're looking to buy a home these days, there's good news and bad news. Potential homebuyers priced out of the market during the housing boom of years past will find some fantastic deals out there. The bad news is it's much harder to secure the funds to buy that dream home.

In the wake of the subprime mortgage debacle, the national forecast for those trying to obtain mortgages or sell their homes continues to be increasingly grim - so grim, that many financial analysts claim the current U.S. housing market is the worst in a decade.

The Federal Reserve Bank of Richmond recently touted the same sentiment in its June report, known as the "Beige Book."

"Residential real estate markets remained weak across most of the nation," read the Beige Book. "Lending activity also varied across districts and market segments, though tighter credit standards were reported for most loan categories."

The Beige Book is published periodically throughout the year, and uses anecdotal information from bank directors, businesses and economists regarding current economic conditions in compiling its results.

Fortunately, the outlook for the local market isn't quite as glum.

"The metro Richmond and Chesterfield County areas have always been a conservative, stable market," said Rob Arthur, senior vice president, Village Bank Mortgage. "The reason for the market stability is due to the diversity in employment opportunities in both the business and government sectors."

Although the local market may be stable, fallout from the national financial landscape has affected the ease of obtaining financing, making it more difficult to secure a mortgage. Gone are the days where people with a bad credit score and no down payment could buy a home.

"Underwriters have tightened down on their guidelines for loan approval," said Laura C. Crowder, loan manager, Franklin Federal Savings and Loan. "Many of the programs available before the [subprime] meltdown have been eliminated. Restrictions on certain types of properties, such as condos have increased."

Four key elements determine obtaining a mortgage, including credit score, equity, debt and income. The credit score figures prominently in the process because of the information it conveys about the loan applicant. The credit score is commonly referred to as the FICO score. This acronym stands for Fair Isaac Credit Organization, and is the credit score model most widely used in the United States. FICO scores range from 300 to 850, with the higher score indicating that the applicant is less of a credit risk. The configuration of the score consists of five components: payment history, amounts owed, length of credit history, new credit and types of credit used.

"The minimum credit score we will entertain is 580," said Arthur. The lower the credit score, the more difficult it is to be approved for a mortgage, elaborated Arthur.

Obtaining funds for a down payment is another common problem for prospective buyers. Mortgage products that offer 100 percent financing are more rare these days.

However, all hope is not lost for prospective homebuyers with less than stellar credit or without large pocketbooks.

"We have some products with no credit score requirement; however, the loan-to-value generally needs to be below 60 percent if the borrower's credit is less than average," said Crowder.

First-time homebuyers may have an advantage.

"It's a great time to be a first-time homebuyer," said Ingrid Sell, senior loan officer at Village Bank Mortgage. "We have grant money up to $10,000 available for qualified first-time buyers."

The grant monies are distributed through the Federal Home Loan Bank of Atlanta (FHLBA), and provide matching funds for down payments and closing costs for low- and moderate-income first-time homebuyers.

"Another grant source for potential home buyers is the agency, Housing Opportunities Made Equal (HOME)," said Sell.

HOME, a nonprofit organization, was founded in 1971. Its purpose is to fight discrimination in housing access. Though located in Richmond, it serves much of the surrounding area, including Chesterfield County.

"Grant funding is available for first-time homebuyers in Chesterfield County," said Mike Burnette, manager of strategic communications at HOME.

HOME's grant programs typically have income limits and credit requirements.

"People are still buying, and the positive thing about the real estate downturn is that it has made homes more affordable," said Terrie Kibler, assistant broker at RE/MAX Allegiance. "Houses priced in the $150,000 range are hot."