Credit Score

Currently, this is a great time to be in the market for a new home. The interest rates on mortgages have fallen countless times over the past few years. Even though interest rates have been in the double-digits in the past, there are homeowners today who are able to agree to a mortgage for less than three percent. 

Despite the low interest rates, it is still important to get the best possible deal. There are a few simple steps that everyone should follow to get the best mortgage deal possible.

Know How Much You Need

The first step is to figure out what type of mortgage is required. Some potential homeowners might be looking for a mortgage they can get with a small down payment. Other potential homeowners might be looking for a mortgage they can pay off quickly.

Remember, the goal is to eventually own the home outright. The goal is not to pay as much interest as possible. Therefore, try to figure out what type of loans are available. Then, decide which loan best matches the needs.

Know The Market

Next, it is important to know what the market is doing. First, consider what the market looks like on a national level. Where do the average interest rates currently sit? Are these interest rates for 15-year loans or 30-year loans? Are the interest rates for fixed-rate loans or adjustable-rate loans?

Then, know what the market looks like in the local area. What are some of the current mortgage rates for loans in the given area? This will give potential homeowners a decent idea of what the current market looks like.

Get The Credit Score In Order

In addition, it is critical to take steps to ensure the credit score is as solid as possible. Some people only check the credit score when it is time to take out a loan. Try to do this as early as possible. There might be errors on the credit report that can influence someone’s score.

The credit score is important because it gives the lender an idea of what someone’s financial history looks like. A higher credit score means the lender is taking on less risk. In this situation, the lender might be willing to lower the potential interest rate.

If you are in the market for a new home or interested in refinancing your current property, be sure to consult with your trusted home mortgage professional.

For a long time after the real estate housing crisis in 2008, buyers with a poor credit history had a difficult time finding mortgage financing. It was a problem that trapped those seeking to buy a home because so many lost their homes from the inability to pay their mortgages.

Some suffered damage to their credit history that was severe. Millions filed for bankruptcy.

Not only did mortgage lending requirements get stricter for home buyers, but the funds available for home loans were also severely reduced. Even those with a good credit history found it more difficult to qualify for mortgage financing.

Time For A Second Chance

Now, there is a much better environment for homebuyers with a bad credit history who are seeking a loan. Those with a bankruptcy on their record, which was settled at least ten years ago, will see the bankruptcy taken off their credit history. Suddenly, their credit score may increase dramatically.

Unconventional Financing

Conventional financing is available for those with decent credit. This includes attractive terms and conditions for FHA loans and other federally-based loan programs. Those with bad credit may not qualify for these loans. If they want to buy a home, their only option is to use unconventional financing, also called non-qualified mortgages (non-QM).

Unconventional financing has higher costs and no federal insurance. In 2008, these non-QM loans were a total of $65 billion per year. In 2009, this figure dropped to $10 billion and, in 2010, the low of $8 billion.

Since 2010, the availability of these non-QM loans steadily increased. By 2018, the total amount of these loans was up to $45 billion. That figure will be higher in 2019.

Is There Another Real Estate Bubble Happening?

Are we back to where we were before when the real estate market collapsed in 2008? As far as the total amount of non-QM loans, we are close. However, the qualifying standards for these loans are stricter than a decade ago.

There is less predatory lending where borrowers who do not truly qualify get a no-doc loan without proving income. Before those predatory loans often had a teaser introductory rate that quickly escalated to an amount that made it impossible for the home buyer to continue to make their mortgage payments. There are fewer of these loans now.

Summary

Besides the big picture real-estate-bubble worries, the positive news is that borrowers with a poor credit history can now participate in the housing market again.

Be prudent when considering a mortgage and carefully think about the ability to make the monthly payments. Read all the details of the loan requirements carefully. Use competent professional advice from a trusted home mortgage professional to make sure there is a very clear understanding of the loan terms and conditions.