For many months I’ve been hearing via almost every media channel out there that today’s home buyers are struggling to get financing – that banks have too high of standards and that many people are not able to get a loan. Funny thing is, that’s totally untrue.
Buying a home is not only a big emotional step, but it is a huge financial step as well. You’re taking on a fixed location and a fixed set of costs for many, many years to come. For most people, their home is their largest single asset. For quite a few years we found that some lenders (certainly not all) would offer almost any amount of loan to almost anyone. I swear at the peak of the housing market, a gerbil could have been approved for a “NINJA” loan.
So after years of crazy loans and billions in losses, banks have now become so hesitant to give out a loan that you have to have perfect credit and a huge down payment to buy a home, right? Wrong…. WAY wrong.
Today people need to be able to demonstrate a history of managing their credit well – i.e. making payments on time, having other loans/credit cards, etc. They also need to have a stable career, which typically means 2 years of job history in their current line of work (schooling is taken into account for recent grads). Finally, they have to have 3.5% down payment money, most of which can be gifted to them from a family member if necessary. Does that sound crazy to you?
From my conversations with several different lender friends, today’s lending requirements are still less strict than they were in the 1990′s. So in the greater context of home financing in the last couple decades, it is still easy to get a loan if you are actually equipped to handle such a responsibility.
What has really made life tougher is that now each loan has no margin for error. Each loan application is being reviewed, re-reviewed and reviewed again. The underwriting department will often come up with what seems like crazy requests for documenting every last item of your credit and income. While this can seem very overblown, they are doing so because they don’t want to go through a single new foreclosure if they can help it. Unless you lied or “forgot” to mention something on your credit app, almost all buyers are still making it to the closing table… though sometimes a few days later than planned.
So if you’ve paid your bills on time and have some job stability, I highly encourage you to talk to a mortgage broker – I bet you’ll be pleasantly surprised. If you question whether you would get approved, I’d suggest you still talk to a mortgage broker to understand your current situation and then reach out to the Minnesota Home Ownership Center to get credit counseling and/or home buying advice. The right efforts started today will put you on a path to home ownership in the not-to-distant future.