Tight standards make mortgages tough to get

— -- Homebuyers such as Bob and Janet Zych have fueled the U.S. housing market for decades.

They have excellent credit with scores that top 800, life-long careers and investment portfolios that have set them up for a comfortable retirement, they say.

But this year, "after faxing a ream of paper" about their finances, they got so fed up applying for a home loan that they simply wrote a check for their new, $85,000 vacation condo in Phoenix.

Trying to get a loan "was just a nightmare," says Bob Zych, 65, a manager for Mohawk Industries in Omaha.

Following the greatest housing crash since the Great Depression, home lending standards have tightened to their strictest levels in decades, economists say. And people such as the Zychs and others nationwide are paying the price.

Tight home loan credit is affecting everything from home sales to household finances. Many borrowers are struggling to qualify for loans to buy homes. Others can't take advantage of some of the lowest interest rates in 50 years because they don't have enough equity in their homes to refinance. Those who can get loans need higher credit scores and bigger down payments than they would have in recent years. They face more demands to prove their incomes, verify assets, show steady employment and explain things such as new credit cards and small bank account deposits.

Even then, they may not qualify for the lowest interest rates.

The National Association of Realtors says lending standards are too tight and are hurting the housing industry's recovery.

The lending industry counters that standards are where they need to be, given still-falling home prices and the shaky economy.

"It used to be anybody with a pulse could get a home loan. Now you have to be an Olympic athlete," says Guy Cecala, of Inside Mortgage Finance.

"The pendulum has swung too far."

Down payment amounts rise

The change is evident in the higher quality of loans held by government entities, which now buy or guarantee most new home loans.

Lenders that originate loans seek to meet their standards so that they don't have to hold loans themselves.

Through June, single-family home loans bought by government-backed Freddie Mac, for example, had an average down payment of 29% and an average FICO credit score of 751, the agency says. That's up from average down payments of 23% for loans originated in 2007 and average FICO scores of 707, Freddie Mac says.

FICO scores top out at 850. The national median is 711, FICO says.

New Federal Housing Administration loans, popular with homebuyers who lack big down payments, likewise are being made to borrowers with higher credit scores.

From January through March, those loans went to borrowers with an average credit score of 704, up from 631 four years ago, FHA data shows.

Even the worthiest borrowers have to put down more money than a few years ago to get the best loan terms.

Real estate website Zillow analyzed 3.6 million loan inquiries made through its website to mortgage lenders since 2008.

In July, prospective borrowers getting the best loan rates had average down payments of 28%. Three years ago, before the worst of the financial crisis, such shoppers averaged down payments of less than 24%, according to data from Zillow Mortgage Marketplace.