We are all enduring a crisis that has profoundly impacted the lives of millions across the globe. This unprecedented event has also affected nearly every aspect of the economy, including the American dream of home ownership.
On the one hand, the current economic environment could provide a great opportunity for prospective homebuyers.
- Mortgage rates are at an all-time low (average APR on a 30-year fixed-rate mortgage is down to 3.375%)
- Many real estate analysts expect home prices to drop in 2020 (Zillow predicts the average home price to drop 3-4%)
On the other hand, lenders are often hesitant to loan to borrowers with less than stellar credit when the economy is unstable, and the requirements to obtain a mortgage have tightened.
- JPMorgan Chase recently raised its minimum FICO requirement to 700 and is requiring a 20% down-payment in order to qualify for a home loan!
- Wells Fargo and US Bank both raised their minimum FICO requirement to 680—even for FHA loans (which require additional insurance but usually have lower credit limits).
- Navy Federal Credit Union and others have even temporarily stopped offering FHA loans altogether.
Although the current environment presents a unique opportunity to achieve the dream of homeownership, it is more important than ever to have your finances in good shape to be able to get an affordable mortgage.
By the way, what exactly is a mortgage?
- A mortgage is a loan where the lender holds the title of the property being purchased as collateral—with the condition that the title is all yours when the loan is paid off.
- If you fail to make your payments, the lender can simply have you removed from the property and sell it to someone else (a foreclosure).
- The foreclosure process can be costly for the lender, so they will take a close look at your financial situation to make sure you are qualified before offering you a mortgage.
There are two great steps you can take to begin your home-buying journey:
- Get a pre-qualification estimate.
- A lender will make an informal evaluation of your financial situation and give you an unofficial estimate of how much you can borrow.
- A pre-qualification is great way to get an idea of the realistic price range for your future home.
2. Obtain a pre-approval letter.
- A pre-approval letter is a legitimate offer to lend you a certain amount under specific terms.
- To get a pre-approval letter, you will fill out a mortgage application and the lender will pull your credit history. The lender will also scrutinize your debt, income, assets, and employment.
- The pre-approval process allows you to shop for the best rates between different lenders and compare your loan options.
- Pre-approval offers can change if your financial situation changes but offers are typically good for 60-90 days.
With a pre-approval letter in hand, sellers will know you are a bonafide buyer, and you will be prime in position to begin working with a real estate agent to find your new home. The preapproval process will also provide valuable feedback on whether your credit situation is adequate to qualify for a mortgage loan.
Although VIVA Finance does not offer mortgage loans, our personal loans can be used to help get your financial situation ready for the home-buying process.
- VIVA’s rates are based on employment information—instead of credit score—and borrowers can build their credit through on-time repayment.
- Our loans can also be used to consolidate and refinance expensive debt, which can help streamline your personal finances.
If you are interested in more information about the home-buying process, VIVA’s financial education content includes a detailed course on becoming a homeowner. Please visit our website to explore our financial empowerment resources or see if there is a financial option that is right for you.
Sincerely,
The VIVA Team
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