Dallas home buyers could be surprised by loan denials in the wake of quickly-changing mortgage guidelines. The economic impact of COVID-19 is causing lenders to raise credit requirements nearly across the board.
The evolving underwriting standards vary by lender and mortgage type, but examples include the following:
Higher credit score requirements
Lower debt-to-income ratios (the less outstanding debt the applicant has, the better)
Larger down payment requirements
Lenders are getting tougher on Jumbo mortgages, too. Jumbo borrowers can expect to see higher cash reserve requirements in addition to the above.
The cautious approach comes as interest rates hover at historic lows. This has kept lenders busy with refinance applicants. The surge of refi business allows them to name their own terms somewhat as applicants clamor for cheap interest rates.
If you have a mortgage pre-approval in hand, be extra careful with your credit and finances! Lenders are going to re-verify your employment, income and credit score right up to closing. Lenders may reject certain sources of income and ask for additional documentation
Buyers trying to get mortgage loans today will see higher credit score, down payment, and debt-to-income requirements, but all of this will vary, depending on the lender and loan program.
According to some reports, Bank of America has raised its FICO credit score minimum from 660 to 720 for home equity loan borrowing. JPMorgan Chase, the nation’s largest bank, now requires a credit score of 700 or higher as well as a 20% down payment for most new mortgages. Wells Fargo and US Bank both adjusted their minimum score requirement to 680 (including for FHA and VA loans, which typically feature lower credit-score requirements as low as 580).
Remember that the credit score is just one piece of the puzzle. Credit history, cash reserves, and debt-to-income ratio are other important factors that are taken into account by the lenders.
In addition, as people work from home, borrowers face challenges in locating the appropriate person to verify employment. This can slow down the loan process significantly and can delay closing on your new home.
If you are ready to seek a mortgage, we can put you in touch with excellent lenders in the Dallas-Fort Worth area! And as our clients, you can get our advice on the mortgage offers you receive. Please contact us for more information!
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