Mortgage money is tight and getting tighter, so homeowners hoping to get a loan at a reasonable mortgage rate need to be better prepared. Lenders are more skeptical, require greater proof of income and assets, and may still charge higher fees if and when they do grant loan approval.

Times have changed in the mortgage business. About 30 percent of those who easily qualified for loans at competitive mortgage rates just two short years ago will now be turned down. Those who do qualify are required to pay larger down payments, provide more extensive proof of credit worthiness, and shouldn't be surprised by rising mortgage rates. Here are five quick ideas for surviving the crisis.

Tip one: Restructure mortgage priorities

Rather than shopping for a home and then looking for a loan with the best mortgage rate, reverse the order. Seek out mortgage advice, select the right loan, and get pre-qualified-or better yet, pre-approved. Then go house hunting. Mortgage rates may rise in the meantime, but those losses will likely be offset by further deterioration in home prices.

Tip two: Bolster credit scores

Even if your credit situation hasn't significantly changed since last year, your overall credit score may have. A higher score can mean a lower mortgage rate; therefore, check your rating before applying for a loan. Also, review a copy of your credit report to make sure that there aren't any errors.

Tip three: Increase your down payment

The best way to get a preferential mortgage rate with less scrutiny is by boosting your equity with a large down payment. But what was considered hefty in the past is not so big today. Many lenders require at least 10 percent down, and 20 percent isn't uncommon. To get a really good mortgage rate without hassles, you may need to ante up as much as 25 percent.

Tip four: Stay in reality

Access to the easy money is over, so consumers need to be realistic about their expectations. Homes will likely be appraised at lesser values, and ratios of loans to actual equity are more conservative. If you lower your expectations, you'll reduce the chances of disappointment and rejection.

Tip five: No stone unturned

If you qualify, consider government-backed loan programs like those offered to military veterans and low-income borrowers. The FHA, for instance, is currently offering attractive mortgage rates with down payments as low as 3 to 5 percent to qualified buyers.

A generation of younger Americans now face mortgage challenges that they've never seen before-and probably never imagined. They came of age during an era of loose lending and excessive leverage that was fueled by market forces that are now painfully reshaping the entire financial industry. Mortgage rates are rising, and may enter double digits in the not-too-distant future. But all is not lost. Good loans are still available to those who apply with strong credentials, but prior planning helps immensely.

Published on March 8, 2011