Getting a Mortgage in Today’s Market

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In the wake of a Great Recession partially caused by the housing crash, getting a mortgage is now a more difficult process. Banks and lending companies are more discerning before approving mortgage loans, after being burned by many homebuyers defaulting and ultimately going into foreclosure. Banks make money by lending money, not short-selling distressed real estate, so it is in their interest to approve home loans for only those who qualify.

While getting approved for a mortgage is harder, it is not impossible, especially if you have a great credit rating and a stable employment situation. You need to do your homework and be prepared before meeting with lenders.

Interest rates are still low, so it remains a great time to buy a home. With that in mind, here is a look at getting a mortgage in the current economy.

Know your Current Credit Score from All Three Bureaus

It is important to get your free credit reports from all three bureaus before starting on your mortgage quest. This way you will know ahead of time if there are any mistakes on the reports adversely impacting your credit score. Anyone with a score below 680 to 700 may have difficulty getting a conventional mortgage loan. A FHA loan is possible unless your score is below 620, but FHA loans generally come with higher interest rates and require you to purchase mortgage insurance which adds to your monthly bill.

If your credit rating ultimately disqualifies you from getting a mortgage loan, your best bet is to take the steps to improve your score; most obviously, never make any late payments, lower your debt to income ratio, and maintain steady employment.

Cash for a Down Payment is a Must

It is absolutely vital to save enough money for at least a 20 percent down payment on a mortgage loan. Gone are the days when zero percent home loans were common. If you don’t have the cash for a 20 percent down payment, a FHA loan may be your best option. In short, the more cash you have, the better chances of seeing your loan get approved.

Keep in mind, you will also need money for closing costs, which run anywhere from three to five percent of the mortgage amount. Some home sellers will help cover a portion of your closing costs, but don’t assume anything. Your best bet is to save your cash; consider withdrawing some money from your 401K or IRA as a last resort, if allowed.

Get Pre-approved for a Loan before going Home Shopping

Getting pre-approved for a home loan before starting your house search is the smart call. That way, you know how much you can afford ahead of time, instead of wasting your efforts looking at houses beyond your means. Remember to give yourself some leeway at the top of your budget, especially if you are looking at qualifying for a FHA loan and its associated mortgage insurance.

Even in today’s market, mortgage lenders tend to approve you for an amount based on your income and credit history, without taking into account your regular monthly bills. Try to look at homes valued at 70 to 80 percent of your approved amount, as it helps with your future monthly budget.

Don’t make any Big Purchases before your Loan Closing

Hold off on the temptation for big money purchases before your home loan closes. This includes furniture, fancy outdoor grills, and ultra HD televisions. Even if approved for a loan, many lenders re-check your credit report before closing, and a bunch of new debts might get your loan declined and you stuck with a bunch of furniture with no house.

Once your loan closes and the move-in date is near, make sure your utilities are all ready to go using our convenient online form. Enjoy your life at your new residence!‚Äč

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