Mortgages haven’t been that hard to get in 6 years, data shows
There’s a reason potential buyers are clamoring for home loans right now: Mortgage rates have fallen 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 make more viable loan applicants.
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It’s getting harder and harder to borrow
Mortgage lenders tightened their borrowing standards to the point that it hasn’t been that difficult to get a home loan in six years. Specifically, the Mortgage Bankers Association’s Mortgage Availability Index fell 4.7% to 120.9 last month, the lowest since March 2014. This index measures the availability of mortgages based on risk. credit, and it says lenders are enforcing 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 stringent with their down payment requirements. Previously you could qualify for a mortgage with as little as 3% down payment (although you get hit with private mortgage insurance in the process), but now 3% down payment may not steal 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 A Mortgage Approved
The higher your credit score, the more likely you are to be approved when you apply for a mortgage. So if you are currently hovering in the low 600 range, try increasing that number. Here are some ways to increase your credit:
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 successful, it may reduce your credit utilization rate, which is a big factor that goes into your credit score)
Check your credit reports for errors and correct errors that are unfavorable to you, such as debts to your name that are not yours
Of course, the more you are able to improve your credit score, the greater your chances of getting 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-700s.
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 will find yourself underwater on your mortgage (meaning your outstanding mortgage balance is more than the price at which your home is priced. 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 several months of pay stubs, 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 gaining the upper hand. On the other hand, stricter loan requirements could make the mortgage application process more frustrating. If you are hoping to buy a house in the near future, try to 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.