Will It Become Easier to Get a Mortgage in 2020?
The current economic expansion is over 10 years old and has already set a record as the longest in U.S. history. Many investors remain wary, expecting the U.S. economy to slide into recession at some point. Mortgage lenders are less pessimistic as we head into a new decade and hope to make even those with weaker credit new homeowners.
According to a story from Market Watch, those hoping to buy a home could be in luck. Lending standards for a home mortgage could weaken, allowing more people with some dings on their credit to soon get keys to a new home.
Not a Return to the Mortgage Crisis
What is driving the loosening of lending standards? According to Moody’s Analytics, the number of affordable homes has crashed, and lenders need to make larger loans to people so that they can buy current homes on the market. The loosening of lending standards should also sweep in people who have never obtained a home mortgage before.
Essentially, lenders are afraid of a big decline in the number of loans they originate. If that were to happen, the amount they make in fees and interest payments would also collapse, threatening the booming profits that lenders have enjoyed over the past decade.
Those most likely to benefit from the loosened underwriting standards include those with “near prime” credit scores, which means those with a score in the 580-669 range. These borrowers have been locked out in previous years but should see lenders embrace them in 2020.
Lenders probably will not require as much documentation to make loans next year either. Of course, this does not mean we are returning to the days of “no documentation” or “liars” loans. However, those who are self-employed, have a few dings on their credit, or who need very large loans should see renewed interest from lenders.
Lenders Jumping Back In
The market for non-prime mortgages shrunk considerably after the Great Recession. Recently, lenders like JP Morgan Chase & Co. and Citigroup have jumped back in to make non-prime loans, which should add to the current $11 trillion in mortgage financing. Most of this financing is to prime borrowers, because those loans are guaranteed by Freddie Mac and Ginnie Mae, which are government-sponsored enterprises. But lenders are eager to take on more risk, especially since it carries the potential for greater profits.
Be Wary of Buying Too Much House
Although banks might want to lend, this does not mean that consumers need to borrow all that they can. There is proof that some consumers are struggling in the current economy. The MarketWatch article also includes a graph showing that credit scores have declined for those aged 30 to 59. More and more are now considered subprime borrowers, which might be why lenders are loosening their underwriting standards going forward.
Before taking out a mortgage, thoroughly examine how large of a mortgage payment you can afford. Don’t forget the cost of insurance, taxes, and home maintenance. You will also need to include closing costs in the original loan amount, which could equal 3-6% of the purchase price of your home.
If you are facing financial difficulties, contact Nowack & Olson today. A Plantation bankruptcy lawyer can help you consider how to proceed, including whether bankruptcy is right for you. Call us today at 888-813-4737.