The Truth About Mortgages For First Time Homebuyers
If news about the mortgage industry has you stressed, we want to educate you on important home buying facts. Visit our site to learn why you shouldn’t stress about mortgage industry news.
If you read the headlines or listen to the news, hearing about interest rate changes, layoffs and other news can feel overwhelming for potential homeowners. Mortgage industry news can feel like a lot to take in, especially if you're a first-time homebuyer. Between all of the doom and gloom predictions and changes, it's hard not to feel stressed about the future and your potential to secure a mortgage in today's market.
As a first-time home buyer, there’s a lot of information to take in from seemingly countless mortgage professionals. If you’re feeling stressed, let us walk you through the reality of what’s changed in 2022 in the mortgage industry, what’s not changed and how it all might affect you.
Basic Mortgage Qualifications Haven’t Changed
Though the industry has seen some changes over the past few years, the same general mortgage qualification rules have been in place for decades.
In most cases, to qualify for a mortgage, you may need:
- Credit History & Score
- Lenders review your credit history to assess how well you pay your past and current debts on time.
- Your credit score, typically ranging between 300 and 850, is used to represent your creditworthiness. A higher credit score may open up lower interest rates, lower down payments and may allow you to qualify for certain loan programs.
- Capacity to pay back the loan
- Lenders look at your income, work history and type of income to ensure you show the financial stability to repay the mortgage loan.
- When considering your capacity to repay, debt-to-income ratio (DTI) plays a factor in determining pre-approval. Lenders look for DTI to sit between 28 to 36 percent of your income. Online calculators can give you a general idea of your DTI before contacting a lender.
- Mortgage brokers and lenders want to see your available savings, investments, assets, etc. that you can access to pay your mortgage.
- Down payment assistance programs or grants, such as those you may qualify for by completing your eHome America courses, can be considered capital
- Gifts from family and friends
There's lots of capacity available in the mortgage industry for loan applications or refinancing.
Even with the current industry news, there is still plenty of capacity in the mortgage industry to get a loan or refinance. Mortgage lenders are not going anywhere, and they will still be lending money to qualified borrowers. So, whether you decide to begin the home search now or wait a few months, know that there'll still be plenty of opportunities to get the mortgage you need.
Increased mortgage rates generally mean heavy demand for homes may decrease.
One of the main reasons people may be hesitant to buy a home right now is because mortgage rates have increased. This brings about a benefit that many first-time homebuyers may not think of - lower demand for homes. If there are fewer buyers in the market, you may have a better chance of having your offer accepted. You may even save money on your home purchase if you're able to negotiate a lower price.
Interest rates are up but are now back down to pre-COVID.
Though interest rates have increased recently, they are still relatively low in historical terms. Over the past 30 years, the average 30-year mortgage interest rate has fluctuated from as low as 2.96% to as high as 16.36%. Currently, the average 30-year interest rate is 5.5%, which is on par with where interest rates were pre-COVID and near the lowest we've seen in the past 30 years. What should you get from this? While some people are bent out of shape about interest rates being on the rise, it's important to remember that they're still near historic lows and could drop again at any time.
As you can see, a lot of the mortgage news you hear about is smoke and mirrors. A lot of the stories are blown up to get more views and clicks. The truth is that the mortgage industry is still strong and interest rates are still low, so don’t let the news scare you away from homeownership or refinancing. What we encourage you to be concerned with is your individual home buying situation and gathering as much knowledge as you can to be an informed homebuyer. You can do just that with our financial education courses on eHome.