Even With Stellar Credit It’s Hard Getting Mortgages

Due to the current economic conditions, getting a mortgage has become much more difficult than it was in years past. Even people with stellar credit are having a hard time getting a mortgage. There are various reasons why people with stellar credit are having a hard time getting approved.

Banks Tightening Mortgage Underwriting Standards

The first reason why people with stellar credit are having a hard time getting approved for a mortgage is that banks have tightened their lending standards. With mortgage defaults and rate of foreclosure at an all-time high, banks are drastically increasing their underwriting standards. The banks are doing this to ensure that the mortgages they make today have a lower risk and come with a higher rate of return.

Not Enough Equity

One reason why people with stellar credit are having a hard time getting approved for a mortgage is that they do not have enough equity in the loan. In years past, mortgage lenders were willing to give mortgages to people with good credit, even if they had no down payment. Now, mortgage lenders are requiring that all of their borrowers put forth at least a 10% down payment. If the borrower has less than a 20% down payment, they will be required to pay private mortgage insurance.

Can’t Afford The Payments

Another reason why people with stellar credit are having a hard time getting approved for a mortgage is that they can’t afford the mortgage payments. In years past, people could get approved for a mortgage if they had a mortgage debt to monthly income ratio of 40% or less. That mortgage underwriting standard has tightened considerably, and many lenders now require their borrowers to have a ratio of 28% or less.

By Ashley Jones