New Mortgage Requirements Resort to Old-School Terms
Home buyers in 2008 stand to get some really great deals on properties due to a surplus of inventory, developer incentives, low interest rates, and reduced prices. But could stricter mortgage requirements prevent some potential purchasers from owning the home of their dreams?
Following the subprime mortgage fallout, lenders cracked down on home loan standards, making once common offers (such as 100% financing) a thing of the past. Now, borrowers can expect to have to come up with a substantial down payment to buy a home – just like in the old days. That doesn’t mean every bank is going to require you to put down 20% to acquire a mortgage loan, but it is likely that financial institutions will want at least 5% down to approve lending. Industry experts anticipate the norm may increase even more in the future, with banks asking borrowers to produce 10-15% of the home price in order to secure financing.
In addition to requiring a larger percentage down, lenders have tightened up on borrowers’ credit standing. Once again, the accepted standards are reverting back to similar conditions of yesteryear. The minimum credit score needed to qualify for a mortgage has rebounded to the 660 – 680 range (it hovered in the high 500s at the height of the subprime era).
The shift towards more conservative lending will make it harder for some home buyers to get a loan, especially those who have trouble saving up thousands for a down payment. There are, however, a few special financing options that can help potential buyers with little equity become proud homeowners. A Federal Housing Authority (FHA) loan is government backed and designed for people without a lot of money for a down payment. Borrowers must fulfill a certain criteria to be eligible for an FHA loan, but if granted, you can get a mortgage with just 3% down.
Rent-to-buy is another creative financing alternative that gives buyers a little extra time to set funds aside while they “rent” their new home. Instead of going into your landlord’s pocket, your rent money is accumulated for a down payment. You get to move into a new home right away and then apply the saved amount towards the purchase of the place after a predetermined time period (usually 6 months to a year). To find out more about rent-to-own options in Chicago, contact a Dream Town agent or learn about Dream Town’s exclusive rent-to-buy condo development at Paulina Park here!