Mortgage Misconceptions

“We’re well into this year’s home buying season and too many potential buyers and sellers are sitting on the sidelines because they’re afraid they can’t qualify for a home loan—before they’ve looked into it,” says loanDepot’s President and COO Dave Norris referring to the results of a recent survey conducted for his company by the research firm OmniTel.  “While market and regulatory conditions have made it harder to secure a loan, consumer lending is beginning to loosen up for borrowers, including those with less-than-perfect credit. Unfortunately, potential buyers are forfeiting their dreams of homeownership before they find out what financing options are available to them.” Fear of qualifying for a loan In the survey, 74% of potential buyers who would need a mortgage conceded that they had not bothered to check out their local housing market, nor had they taken any of the steps necessary to qualify for a loan.  Among those who didn’t already own a home, 56% said they were not in the market for fear of not qualifying for a loan.  Another 30%, who already own a home but wanted to buy another, were also avoiding the market for fear of loan rejection. As it turns out, their fear of rejection may be little more than a misconception that mortgage lending practices remain as stringent as they became following the housing market downturn. Emerging news that mortgage lenders are beginning to ease restrictive lending standards comes at an especially good time for buyers who have been avoiding today’s re-energized housing market for fear of not being able to qualify for a loan.  Housing inventories are up, choices are more plentiful than a year ago; and mortgage rates have dropped again in recent weeks.  Plus, all this comes as the nation’s busiest home buying season is kicking into gear. Evidence of your ability to repay Even though qualifying standards are less stringent than they were a year ago, the amount of supporting documentation required before final mortgage approval is granted has not changed.   Evidence of your ability to repay the loan—such as bank and brokerage account statements, W-2 statements, your most recent tax returns; and evidence of any other assets that underscore your ability to buy and maintain a home are still very much required; and will need to be furnished as often as requested during every stage of the approval process. At times, assembling these records will seem like a gigantic case of overkill; but at the end of the day both parties to the loan are being shielded from the lending abuses of the past.  In other words, furnishing this required documentation is the new normal for every buyer applying for a mortgage; and should not be taken personally.   Today’s historically low interest rates are worth the effort it takes to submit each item as often as requested. Pre-approval If you want to buy a home before mortgage interest rates begin their inevitable rise, the best way to succeed is by having yourself pre-approved for a loan before you begin your search. Pre-approval has several key advantages. First, it helps determine the price range that works best for your circumstances.  Secondly, once you’ve found the right home and made an offer, it gives the seller a high degree of confidence that you are a serious buyer capable of moving forward. Pre-approval also sets realistic expectations for all parties to the transaction—including buyer, seller and their representing agents—that final approval is likely to happen. Ralph Waldo Emerson once said that the future belongs to those who prepare for it. This is equally good advice for buyers who must first lay the groundwork for homeownership by qualifying for a mortgage.