In the past 3 months I have taken over 40 new applications. Not bad for the season we are coming into.
Something that has alarmed me, however, is what I have heard from almost half of them. “I don’t know if I can get qualified because I hear banks are not lending money anymore” or “I hear it is very difficult to get a loan.”
Qualifying for a Home Loan
Simply stated, these rumors are not true. I don’t know where this rumor started but I suspect media has a lot to do with it. To be sure, it is more difficult to get business loans currently but that doesn’t necessarily translate into residential lending. If the rumors being spread are by people trying to compare today’s lending to the “Sub Prime” era, then yes it is harder to get a home loan today than back then. During the Sub Prime hay day we used to say anyone who could breathe could get a mortgage. While that saying was in jest, there was some validity to that statement.
Let’s be honest, should we really have been allowing anyone with a 500 FICO score (450 is the lowest and 850 the highest), 1 day out of bankruptcy, and a collection rap sheet that rivals a career criminal, state that they make $150,000 a year without documentation? On top of that, no down payment required! Here’s a good question: Would you lend a total stranger with a proven history of not paying on time or not paying at all $200,000 of your own money? If so, good luck with that!
Because so many of these types of loans went bad, banks were forced to tighten up the requirements. In reality, they are pretty much doing what they had been doing before the Sub Prime fiasco and should have been doing all along.
Managing Your Credit
If you mismanage your credit, you will be required to show at least a 12 month history of getting back on track. That said, there are still programs available with low down payments (and in some cases no down payment) for borrowers with lower credit scores or dinged credit.
If you have a 620 credit score, you still have a good chance at an FHA, VA, or USDA Rural loan (and in some cases even lower scores allowed if you meet certain criteria).
Loan Documentation Required
While conventional loans and PMI companies that insure their loans are requiring higher credit scores, the main change in lending today is documentation. Your income and assets must be verified through W-2’s, tax returns, pay stubs and up to date bank statements with deposits that can be verified.
The truth is, banks are still lending money for homes to thousands of people every day. They are just doing due diligence to make sure you can handle the line of credit they are giving you.
Unless you choose a loan officer with little experience, it can and should be a smooth and exciting process!
Click HERE to apply for a mortage online
Vice President/Branch Manager
The Ashton Real Estate Group of RE/MAX Advantage
The #1 Real Estate Team in Tennessee and #4 RE/MAX team in the world!