As unemployment rates have climbed to more than 40 million people and millions more fall behind on their mortgage payments since the start of the coronavirus pandemic, lenders have taken a significant hit. To lower those risks, many have ultimately changed some of their eligibility requirements and underwriting processes.
For anyone trying to obtain a home loan right now, getting approved can be a bit more challenging. Below are some tips to help increase your chances of obtaining a mortgage during the pandemic so you can purchase the home of your dreams.
Reevaluate Your Financial Status
Before applying for a mortgage, review your financial status to ensure you’re still prepared to own a home. These are uncertain times and job security is not once what it used to be. If your income or savings has been altered in any way since the pandemic or there’s a possibility you could be laid off in the near future, it may be best to wait until you’re financially stable again.
Review All three Credit Reports
Underwriters are going to be combing through your credit reports. Things that may have been overlooked or explained away in the past may not cut it today. So, request a copy of all three credit reports. Many lenders require you to have a credit score of 680 or higher.
If you need to boost your credit score you can do things like make timely payments, pay off old or collection accounts, dispute inaccuracies or old accounts, and reduce your debt to income ratio. It may take a few months for you to see a jump in your credit score, so keep the pace and remain patient.
Have a Sizeable Down Payment
A larger downpayment reduces the amount owed to the mortgage company and, therefore, reduces their risks. Instead of 10%, it may be necessary for you to have 20% saved up. If you cannot reasonably afford to bump your down payment up, you’ll need to hold off on buying a home until you can.
If you’re looking for ways to increase your down payment there are several things you can do. You can take on extra hours at work, find a part-time job, start a side hustle, or sell any unwanted belongings.
Keep Your Day Job
Job security is a big issue for lenders. Should they approve a mortgage and the borrower suddenly lose their job, this leaves them in a really bad financial position. Therefore, they screen applicants’ job history and security very well. Whether you’re tired of working a dead-end job or simply ready for something new, you may want to put it off until you’ve been approved for a loan. The longer history you have with a job the less of a risk you are for lenders.
Shop Around for Mortgages
Though lenders have beefed up their eligibility and underwriting requirements, it doesn’t mean you need to be desperate and accept the first offer you get. On that same token, if you’ve been turned down by one institution, that doesn’t mean that all hope is lost.
Take your time to shop around for mortgages before making a final decision. There are still a lot of programs out there to help first-time homebuyers, veterans, and low-income families. These programs are backed by the federal government and, therefore, a lot easier to get approved for. If you fall into one of these categories, ask lenders about the mortgage programs they have available for you.
It’s true that the current changes lenders have made are stricter than in times past. It’s also true that these changes have made it more challenging for interested home buyers to obtain a home loan. On the bright side, however, it is still possible to purchase a home during the pandemic. By following the above-discussed advice, you can lower your risks to lenders, therefore, increasing your chances of getting approved.