Lenders are tightening their loan requirements in light of the corona chaos. Prospective Boston real estate buyers are flocking to lenders in pursuit of those low-interest rates, but lenders are not making it easy to qualify for loans, especially in higher-cost regions like downtown Boston.
It’s not difficult to understand lenders’ concerns amidst job losses and general economic instability. However, if you were preapproved for a loan in pre-corona times, it’s likely your lender has slapped some new requirements on that approval.
One of the biggest requirements is mandated cash reserves. For example, one major lender historically wanted to see a year’s worth of reserves for a Beacon Hill single-family home purchase with a jumbo loan. This bank now wants to see a buyer having 18 months’ in reserves and 24 months for a multi-unit building.
Lenders are also requesting higher credit scores and larger down payments. You can expect continuous employment and income verification, too, so make sure you have your HR department on speed dial.
I recommend you get fully preapproved for a loan prior to starting your Boston downtown condo hunt. There’s competition for Boston real estate homes and desirable high rise condos, so you can have the option of waiving a loan contingency if the bank’s underwriting department has already greenlighted your loan. You’ll also need a current preapproval letter, in many cases, if you want to secure a property showing.
As always, it’s good to be prepared for your property hunt if you want to ensure success.
As mortgage lenders assess each applicant’s risk of default, they look at the credit score and all its most influential factors. With a glance at the credit score, lenders can tell if the applicant might qualify for a Beacon Hill condo loan. In general, most lenders cannot authorize mortgage loans for anyone with a credit score of less than 640. A credit score of around 700, however, not only improves eligibility but also helps Boston condo buyers attain favorable loan terms.
Weighing creditworthiness goes far beyond simply looking at the credit scores. Lenders also look at the factors that shape these scores to see who the applicants manage their finances. They look at the payment history first as this factor can reveal if the Back Bay condo buyers will make their mortgage payments on time. Lenders can see all the most recent 30, 60, and 90 day late notices attached to open and closed accounts. The late payment history decreases the chance of qualifying for the mortgage and drops credit scores quite a bit.
Credit utilization and age of accounts are also both important factors for lenders to consider. By looking at credit utilization, lenders can assess the level of debt held by the applicants along with their ability to cover all their financial obligations. The age of the accounts gives lenders a glimpse at the financial responsibility and standing of the applicants over a specific length of time. Older accounts that remain in good standing have a positive impact on credit scores and the perceived creditworthiness of Back Bay loan applicants.
Although this factor has a minor pull on credit scores, lenders check for a high number of credit inquiries while processing the mortgage loan for a Midtown condo loan application. These inquiries stay on the credit report for two years before dropping off. When applicants have a high number of inquiries, lenders tend to see it as a red flag – and credit scores start to drop from excessive inquiries.
Beyond their use as a tool for determining eligibility, credit scores have a big impact on the final loan terms offered to the homebuyers. Here are just some of the ways these the influence of the scores mortgage terms.
As a part of their risk-based pricing model, mortgage lenders use the applicant’s credit score to determine the mortgage interest rate for their Seaport condo loan. A low credit score often causes the interest rate to skyrocket, resulting in higher monthly payments and loan payoff costs. People with a high credit score of at least 700 might qualify for a home loan with a 3.6% interest rate, for example, while those with a 625 score might get assigned a higher rate of 4.1%. Therefore, it is possible for Seaport District condo buyers to save their households a lot of money by increasing their credit score before seeking a home loan.
Lenders use different loan-to-value (LTV) ratios for people with high and low credit scores. This ratio reflects the overall value of the home compared to the total amount of the loan. The loan programs offered by the lender may use the credit score of the applicant to determine their ideal LTV ratio. For conventional mortgages, the LTV usually cannot fall below 80%, but for some programs, a high credit score may make up for that discrepancy.
When North End condo buyers do not have a 20% down payment, they may have to take out a private mortgage insurance (PMI) to qualify for the mortgage loan. Their credit scores also have an impact on the cost of this type of insurance. The private mortgage insurance companies take a look at the applicant’s credit score to determine their personalized rate. Those with a credit score of more than 750 will only pay a half percent of the home’s purchase price in PMI costs each year. For applicants with a 680 and below credit score, they can expect to pay twice that rate.
As lenders weigh all the different creditworthiness factors for their Boston North End loan applicants, they are able to determine eligibility and set the right terms. This allows the lender and North End condo buyers to work together to find a mutually-acceptable financial agreement. Through this arrangement, the lender can assume a comfortable level of risk while allowing homebuyers to pursue their dreams of homeownership.
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