Getting approved for a mortgage can be a daunting task, especially if you have less than perfect credit. However, recent trends in the lending industry suggest that mortgage lenders are loosening their credit standards, making it easier for borrowers to obtain financing for their dream home. In this article, we’ll explore this trend and what it means for you as a potential homebuyer.
What is a Credit Standard?
A credit standard is a set of criteria that lenders use to evaluate a borrower’s creditworthiness. These criteria include factors such as credit score, debt-to-income ratio, and employment history. The higher your credit score and the lower your debt-to-income ratio, the more likely you are to be approved for a mortgage.
Why Are Mortgage Lenders Loosening Credit Standards?
One of the main reasons that mortgage lenders are loosening their credit standards is the current state of the housing market. With home prices on the rise, lenders are competing for a smaller pool of borrowers. By loosening their credit standards, they can attract more borrowers and increase their business.
Additionally, the COVID-19 pandemic has had a significant impact on the economy, leading many lenders to reevaluate their lending practices. Many have relaxed their standards in response to the pandemic, allowing more borrowers to qualify for mortgages.
What Does This Mean for Homebuyers?
If you’re in the market for a new home, this trend toward loosening credit standards could be good news for you. It means that you may have an easier time getting approved for a mortgage, even if your credit score isn’t perfect.
However, it’s important to remember that just because lenders are loosening their standards doesn’t mean that they’re giving out mortgages to anyone who applies. You’ll still need to meet certain criteria to qualify for a mortgage, and you’ll need to be prepared to provide documentation to prove your income and assets.
What Should You Do Before Applying for a Mortgage?
Before you start the mortgage application process, it’s important to take a few steps to ensure that you’re in the best possible position to get approved. Here are some things to consider:
Check Your Credit
Start by checking your credit score and reviewing your credit report for any errors or inaccuracies. If you find any errors, dispute them with the credit bureau to have them removed from your report.
Pay Down Debt
If you have high levels of debt, work on paying it down before applying for a mortgage. This will help improve your debt-to-income ratio and make you a more attractive borrower in the eyes of lenders.
Save for a Down Payment
The more money you can put down on your home, the more attractive you’ll be to lenders. Aim to save at least 20% of the purchase price of your home for a down payment.
Conclusion
The trend toward loosening credit standards in the mortgage industry is good news for homebuyers. However, it’s important to remember that lenders are still looking for qualified borrowers who can prove their income and assets. By taking steps to improve your credit score and debt-to-income ratio, you can increase your chances of getting approved for a mortgage and achieving your dream of homeownership.