If you are hoping to get mortgage these days, it shouldn’t be that easy. With the current economic situation, lenders are starting to be stricter in screening consumers applying for loan. All of these started out when the subprime mortgage crisis occurred in 2007.
When this crisis occurred, it resulted to a negative blow for the financing industry. Case-Shiller pricing index at that time showed that house prices collapsed. When the interest rates soared high, consumers had a difficult time being approved for refinancing. Most of them who decided to refinance obtained an adjustable mortgage rates. If they didn’t get approved, subprime borrower would have a hard time paying for their mortgage as it became very expensive. Which what did happened and ended with a rising rate of foreclosures and defaulted payments. These resulted losses and depletion of capitals by various lenders.
Because of these events, the lending industry went on a credit crunch. This condition is the reason why loans are much harder to obtain. Lenders are now asking for more requirements to qualify you. On top of that, interest rates are still high that only those who have good outlook on their debt, revenues and assets can afford them.
As you can see, the lenders are becoming more selective. They do this to correct the weak financing regulations and to protect their interests. They believe that opting for a more secure investment and obtaining prime borrowers would prevent further losses for the industry.
Lenders also have no choice but to limit their funds available for loan. They cannot even extend too much credit even if they want to because of the losses they incurred before.
Effect to the Real Estate Market
Since financial institutions are beginning to tighten the requirements in loan application, most borrowers are no longer qualified. As a result, not many of them are also qualified to purchase a new home. Considering the fact that they rely heavily on mortgage to finance the purchase.
If there aren’t too much qualified buyers in the market, vacancy rates and stale properties would increase. Thus, this affects the values of homes heavily.
Since interest rates also continue to rise, many people who have managed to maintain their debts before may eventually have a hard time paying it. Just as long as they do not end up being unemployed or get hit by financial hardships, they can keep their homes. However, if the most unfortunate events happen, this could lead to defaults in payments and foreclosure may be at hand.
Valuable tips to borrowers
If you really want to obtain mortgage, there are several things you have to do to be assured of loan grants and economical deals. Here are some of them:
1. Monitor credit reports and credit scores. Make sure they are always accurate. In the even there are errors, have them corrected as soon as possible.
2. Make timely payments. Keeping a spotless credit report would make you a favorable borrower in the eyes of your lenders.
3. Before you apply for loan, always make sure you have all the necessary documents at hand. You do not want to be rejected just by missing out one of the many documents you lenders require.
4. Always shop for interest rates. It does not mean if rates are soaring high; you can never find one that is economical.
5. Take care of your job. The more stable it is, the better chances you have for getting a loan. If you do not have enough income, find other sources. The better the debt to income ratio, the more chances you get qualified.