If you want to get a loan to buy a home, then there are all sorts of hoops to jump through and challenges to overcome on the road to mortgage approval.
While this has always been the case, it is also true that buyers are facing even more of an uphill struggle at the moment. Here is a look at the factors creating these challenging conditions, and the things you can do to maximize your chances of borrowing successfully.
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Instability is creating caution amongst lenders
The economic fallout of the global pandemic and the instability that this has created in almost every industry and sector has understandably made lenders more risk-averse.
It does not make sense for them to provide mortgages to people whose livelihoods may hang in the balance because of COVID-19, as there is a far higher chance of missed payments and ultimately of repossessions.
Under normal circumstances, tightening the eligibility requirements for mortgages would be bad for the business of lending, but the pandemic has also resulted in other phenomena which make this more palatable; namely low interest rates and high demand for housing have created a scenario in which banks can afford to be choosier.
Understanding mortgage rates
A quick look at today’s interest rates on a mortgage will reveal the extent to which borrowing has become both more affordable and trickier to actually acquire, from a home buyer’s perspective.
This is another symptom of the broader socio-economic circumstances of the era, and yet it means that if you are in a position to get a mortgage, now is very much the time to strike, as waiting any longer might mean that a rise in rates and repayment costs is inevitable.
Achieving approval when applying for a mortgage
To make sure that you are an attractive proposition for lenders, you need to understand what it is that they are looking for in mortgage customers.
First and foremost, your credit score has never been more relevant in this context, as this is the chief means by which lenders have made eligibility requirements tougher in the past year. Anything you can do to improve your rating with the biggest credit agencies is thus a worthwhile move. Pay off your credit cards, reduce your debt as much as possible and always hit payment deadlines, as late payment is always going to have a negative impact.
Of course you might think that by avoiding any kind of credit-related situation and just saving your cash is sensible, but this is equally unhelpful, because you need to build up a good credit history to be considered for a mortgage in the first place. If you have little or no history to speak of, then lenders will have no proof of your reliability as a borrowing customer.
Another factor that is more crucial than at any point in the past is having a sizeable down payment available to back up your application. This in itself is evidence of your frugality and financial savviness, and if you want to seriously increase your chances of getting approved, having a down payment that is at least 20% of the value of the home you intend to buy is essential.
So there you have it; it is far from impossible for first time buyers to get approved for a mortgage at the moment, and there are lots of reasons to jump into this process right now rather than waiting, but you just need to be aware of the hurdles that lay in your way.
