Low mortgage rates and stabilizing housing prices make this the ideal time to start looking for a new home. The time may be ripe for buying a house, but some homebuyers face challenges with getting a home loan.
During recent months, lenders have become more stringent regarding the requirements for new mortgages. Understanding how and why things have changed helps you get in the right position for landing that much-needed approval.
The recent pandemic has caused many people to be out of work suddenly. It caused lenders to be cautious about issuing a loan to someone who might not be able to make their monthly mortgage payments. More loans are currently in forbearance due to the high unemployment rate. Since a person’s income can quickly change in the current environment, lenders take more time to scrutinize an applicant’s financial history.
Early in the pandemic, investors chose to scale back their interest in jumbo mortgage-backed bonds. Jumbo loans are higher than the current conforming loan limit of $510,400 in most locations and $765,600 in higher cost of living areas. Choosing to stay within the conforming limits makes it easier to get approved simply because these mortgages are lower risk compared to higher ones.
To further minimize risk, lenders have enacted stricter requirements for homebuyers to get approved. Currently, many mortgage lenders are looking for credit scores that are 700 or higher. Applicants are often asked to put down at least 20% for a down payment. Keep in mind that there are still particular types of loans that can help people overcome credit and downpayment challenges. Exploring your options helps you have the best chances for approval.
Hearing that lenders are more stringent may be daunting, but some things are better for applicants. Social distancing has made many lenders more open to conducting business online. Being able to complete an application and submit documentation virtually streamlines the entire process.
Many of the things that we tell homebuyers about getting approved have not changed. They have become more critical. If possible, continue to pay your current debts on time. If you need to defer a payment on a mortgage, then work with that lender to make sure that it does not affect your credit score.
Staying organized during the application process also helps you to meet new requirements for income verification. Be prepared to promptly submit your information so that lenders get an accurate view of your ability to pay off a mortgage.
While it is true that home loans can be harder to get right now, lenders are still issuing approvals. It may take a little extra work to demonstrate financial responsibility, but it is worth it. Taking advantage of the low rates right now helps you pay less for your new house over time.