A recession brings about economic uncertainty, because consumers are not willing to spend money, and banks are not always willing to lend it. But part of that is hearsay, as a recession is a great time to take out a loan.
A recession is a good time to buy a home because interest rates tend to be lower, which will save the buyer thousands of dollars. But that doesn't mean you should go into the home loan process unprepared. First of all, pull your credit report.
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.
Money in the bank is needed secondly. A direct deposit, between 15-20% is needed along with reserves. Reserves are the money put aside in the bank for repayment of the first two to three months of the loan. The bank needs to make sure you have the appropriate income for the loan.
Also you must verify employment, income, and assets. You cannot just tell the bank you have enough money. Provide the bank with documentation including paycheck stubs and bank account statements.
The documentation is even more important if applying for a home loan during a recession, because the bank is less willing to grant the loan. Submitting the documentation early ensure a quicker approval.
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.
Buying a home is time consuming and intimidating, but a lot of that stress is reduced with the appropriate steps already conducted by the prospective home owner. This includes a strong credit report and proof of available funds.
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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