4 new rules for home buyers

By Alex Markels

True, lenders are getting a little testy, but here's some advice on making it easier to get that home loan you need.

With house prices falling and inventory surging, it might seem that home buyers have it made.

But lending standards have tightened, and even borrowers with good credit, steady employment and cash for a down payment will undergo more scrutiny when applying for a mortgage than just a few months ago. To make sure you pass muster, consider these strategies:

1. Pump up your credit score. Black marks, such as late payments or unpaid tax bills, remain on your credit history for seven years -- even if you pay them off. But paying down other loans and reducing credit lines can improve your score in the short run. If you have a credit card that you don't use very often, cancel it.

2. Bring proof. The days of "stated income" loans, in which lenders don't require you to document what you make, are over. If you're employed, be prepared to show your W-2 form for the previous year, and if you're self-employed, your tax returns for the past three years. Other assets may require documentation, too. If you recently got money in a divorce settlement, you may be asked to show the actual decree.

3. Increase your down payment. The more money you put down, the better your chances of qualifying for a loan. Regardless of what you make or how good your credit, if you don't have at least 5% of the purchase price for a down payment, you could be out of luck.

4. Decrease your loan amount. Don't buy more house than you need. With prices falling or flat, your downside risk only grows with the more you pay. Besides, conforming loans under $417,000 are easier for lenders to sell in the secondary market and therefore easier to approve.