A recession brings on economic uncertainty. It’s one of those spiral effects. Consumers aren’t willing to spend money and banks aren’t always willing to lend it.
Recessions represent an ideal time to take out a home loan because banks are more willing to offer cheaper interest rates. The cheaper rate can save the buyer thousands of dollars over the duration of the loan. Who doesn’t want that?
A high credit score is your key to getting in. Do not have a high credit score’ Especially during a recession your chances of getting approved are very low and even if you are approved, the interest rates will be extraordinarily.
Second, make sure you have money in the bank. You will not only need between three and 20 percent of the home’s total cost for a down payment, but you will also need a minimum of two or three months of mortgage payments in the bank. These are called reserves, and most lenders require reserves in order to obtain a home loan. Your lender can provide specific details on the down payment and reserves requirements.
Always carry documents that verify employment, income, and assets. The individual cannot simply tell the lender he has a job and expect to win the loan. No, documentation includes paycheck stubs and bank account statements.
This documentation is even more important if you are applying for a home loan during a recession because you need to prove to the lender that you can afford the home loan and will make your monthly home loan payments. Be prepared to provide at least three months worth of documentation. Collect the necessary documentation and have it on hand prior to applying for the home loan in order to speed up the application and approval process.
Although the current economy does not look promising, do not fear the chance of earning a loan. Home loaners still need business, but they will remain more selective until the economy changes. Inform the lender that you are speaking with other lenders and they will be more inclined to offer a cheaper deal.
Scared about the recession and intimated about the recession. Do not worry, as a lot of it is in your head. As you can see, with the right credit score and funds, you are actually at an advantage over the lenders in this point of the economy.
Tom Martens is the content coordinator for South Arica?s leading Homeloans portal which amongst others offers Bond origination services for all major banks.
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