Lenders are getting more and more strict about granting mortgages, and borrowers should be aware of this.
There’s a reason potential buyers are clamoring for home loans right now: Mortgage rates have dropped to all-time low levels, which means now is a good time to get a good deal. But despite the potential for significant savings, some potential buyers may have to delay their mortgage applications and strive to become more viable loan applicants.
It becomes much more difficult to borrow
Mortgage lenders have tightened their borrowing standards to the point that it hasn’t been so difficult to get a home loan in six years. Specifically, the Mortgage Bankers Association Mortgage Availability Index fell 4.7% to 120.9 last month, the lowest since March 2014. This index measures the availability of mortgages based of credit risk and indicates that lenders are implementing stricter standards during the ongoing coronavirus pandemic. and the recession. The lower the index, the more difficult it is to obtain a mortgage.
Typically, you will need a minimum credit score of 620 to qualify for a conventional mortgage, but some lenders may currently seek higher credit scores. Lenders can also be more strict with their down payment requirements. Previously, you could qualify for a mortgage with as little as 3% down (even if you had been hit with private mortgage insurance in the process), but now a 3% drop may not fly with some. lenders. As such, mortgage applicants may find that they cannot get approval for a home loan today, whereas a year ago things could have been very different.
How to Increase Your Chances of Getting Mortgage Approved
The higher your credit rating, the more likely you are to get approved when applying for a mortgage. So if you are currently in the lower 600 range, try increasing that number. Here are some ways to increase your credit:
Can you guarantee a mortgage rate of less than 3%? Check rates instantly to see
9 in 10 Americans can qualify to refinance their mortgage. With mortgage rates falling to their lowest level in decades, there’s no better time to lower your monthly mortgage payment.
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- Pay all your incoming bills on time
- Pay off some of the existing credit card debt
- Request a credit limit increase on your existing credit cards (if you are successful it can lower your credit utilization rate, which is a big factor that goes into your credit score)
- Check your credit reports for errors and correct mistakes that are harming you, such as debts to your name that are not yours
Of course, the more you are able to improve your credit score, the more likely you are to secure a competitive rate on your mortgage. A credit score of 650, for example, might get you a mortgage, but if you want a peak rate, you’ll usually need your score to hit the mid-700.
Along with increasing your credit score, it pays to save extra money for a down payment, in case your lender requires it. If you invest more money in the purchase of your home, it will also help you avoid a scenario where you find yourself underwater on your mortgage (meaning that your mortgage balance is greater than that. that your house would sell).
Finally, be prepared to show proof of stable employment. If you don’t have one, you may need to delay your mortgage application. These days, lenders are very thorough when checking for employment. You may need to submit pay stubs for several months, and you should expect your mortgage lender to call the company you work for to verify your employment status.
The fact that mortgages are becoming more and more difficult to obtain could help prevent some borrowers from making mistakes. On the other hand, stricter loan requirements could make the mortgage application process more frustrating. If you are hoping to buy a home in the near future, make yourself the best possible candidate. Not only are you more likely to be approved, but you could also get a more competitive mortgage rate to boot.
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