Are Requirements Becoming More Strict to Purchase a Home?
Interest rates are plummeting, more people are starting to make the transition from renting to homeownership. Rising rent prices make owning a home both more affordable and more attractive, especially with the uncertain economy and higher than normal unemployment rates. However, that increase in demand is leaving lenders with a unique challenge: finding ways to make home loans profitable. They’re becoming more selective and requirements to purchase a home are becoming more strict. If you’re thinking of buying a house and applying for a mortgage, this is what you can expect:
You’ll Need Better Credit
Across the board, lenders are starting to look for borrowers with higher credit scores rather than ones that just meet the bare minimum for specific loans. On average, lenders now prefer borrowers with scores over 720. Higher credit scores indicate that borrowers are more likely to pay their mortgage on time every month. That financial stability, especially during an economic crisis, is key for them to make any money on the loans.
Does that mean you can’t qualify for a loan if your credit score is closer to 700? No, but you will need to shop around for the right lender. Do your research and check the minimum requirements for every lender you’re considering working with. If your score is above their new minimum, you’ll likely qualify for the loan.
You’ll Need a Down Payment
Not too long ago, it was easy to qualify for a loan without the full 20 percent down payment. You just needed to purchase private mortgage insurance to guarantee your loan. Now, lenders want those ready to purchase a home to have at least 20 percent of the home’s sale price ready in cash. If you don’t have that down payment in full when you apply, you may not qualify for the loan. That said, down payment assistance programs can help first-time buyers get access to the money they need, but you’ll need to research the options available in your state.
Should You Wait?
It’s likely that interest rates will stay low for a while even after businesses start opening. This means you may be able to wait to purchase a home until things settle down and demand for mortgages starts to decrease. However, if your finances are relatively stable and your credit score is high enough to surpass lenders’ minimum requirements, go ahead and apply for a loan online. The sooner you get pre-approved, the easier it will be to get into the home of your dreams.