Getting a mortgage is getting easier than ever
Obtaining a mortgage has become much easier due to lower credit scores, new products and an increased focus on technology. (iStock)
The past year brought many hardships to the housing market as home prices skyrocketed and inventory was hard to come by. Getting a mortgage – even for a first-time homebuyer – was not among these hardships, however. In fact, securing a home loan got much easier in 2020.
Many of the factors that made different types of mortgage loans simple in a pandemic-plagued year continue to ring true today – like lower credit scores, virtual home tours and help from the federal government – creating the perfect environment to buy a home once inventory shortages begin to ease.
No matter the loan type, you can visit Credible to compare mortgage rates and mortgage lenders.
HERE'S WHEN THE HOUSING MARKET WILL COOL OFF AND 5 TIPS FOR BUYING NOW
An openness to lower credit
Nonbanks, or financial institutions that offer bank-type services but don't have a legal standing as a bank, have significantly opened access to credit over the past few years since the 2008 recession. Headed into 2021, the average credit scores for products originating at nonbanks dropped while credit scores for bank products remained high, according to the Urban Institute's May 2021 Monthly Chart Book.
This is because nonbanks are becoming more lenient in their lending profiles and in determining who can qualify for a loan. The median FICO score on credit reports for homebuyers who took out a mortgage through a bank as of April 2021 was 771, compared to 756 at nonbanks.
Credit history, regardless of leniency, is an important part of the home purchase process while you're house hunting. Be sure to check your credit consistently. If you find that you have bad credit, it may be more difficult to secure a loan until you're successful in improving your credit.
You can see what mortgage products are available to you by visiting Credible and checking your rates without affecting your credit score.
FED'S REPORT OF POSITIVE ECONOMIC GROWTH COULD BRING END TO COVID-ERA FORBEARANCES
Real estate technology meets a growing need
When COVID-19 spread across the U.S. and stay-at-home orders forced businesses to close their doors, the housing market had two options: shut down or adapt. Due to the variety of regulations that suddenly surrounded the mortgage process, adaptation came in several different forms.
Many real estate agents offered more virtual tours of homes. Matterport, a company that makes hardware and software for virtual tours, said it saw a 157% increase in the number of models created per week during the second quarter of 2020.
The mortgage market saw an evolution, too. The adoption of remote online notarization (RON) – which allows borrowers to sign documents in front of a notary from anywhere with wireless internet and webcam access – skyrocketed 547% in 2020, according to an American Land Title Association survey.
As consumers stayed indoors, title companies and lenders were still able to connect and close on homes. Now, as Americans begin to venture outside their homes once again, they can expect a new level of technological capabilities when buying a home. Experts predict there will be no going back, too, and RON transactions will be here to stay.
New products emerge
Many homeowners have struggled to keep up with their mortgage payments throughout the course of the coronavirus pandemic, and many have even entered into prolonged forbearance periods. In order to help homeowners struggling financially, new products have emerged to help low-income families afford their mortgage payments.
For example, the federal government began offering more mortgage refinance options for low-income borrowers on June 5, 2021. The Federal Housing Finance Agency (FHFA) estimates this refinance option could save borrowers between $100 and $250 on their monthly payment. The option also allows for lower debt-to-income (DTI) ratios and gives flexibility when it comes to missed payments.
To see what mortgage options are available to you, visit Credible to compare mortgage lenders and get pre-approved in minutes.
FHFA'S NEW MORTGAGE REFINANCE OPTION COULD CUT PAYMENTS BY HUNDREDS FOR SOME HOMEOWNERS
The bottom line
Home prices are surging in the U.S. and housing inventory continues to decrease. But despite these real estate challenges, obtaining a mortgage loan grew easier the past few months. Types of loans like VA loans, a USDA loan and FHA loans make home buying more manageable, and ensuring you have financial protection as the COVID pandemic ends is vital.
After you find a house you can afford, fill out a mortgage application and begin the mortgage preapproval process, you can be well on your way to completing the home buying process. Working with a financial advisor can help you make sense of the income requirements needed to get a mortgage loan, determine if you will need private mortgage insurance and assist in ultimately helping you pay off your mortgage in the long run.
To see your mortgage options, contact Credible to talk to a mortgage expert and get all of your questions answered.
Have a finance-related question, but don't know who to ask? Email The Credible Money Expert at moneyexpert@credible.com and your question might be answered by Credible in our Money Expert column.