6 New Difficulties with NJ Real Estate Home Financing

Buying NJ real estate is never a simple process, but these obstacles make it more challenging

 

If you have been searching for a mortgage in recent months, you should have realized just how difficult it can be to get approved. These days, the number of mortgage applications that get approved is most likely 3 out of 10, compared to 9 out of 10 before the housing market crashed several years ago. Underwriting standards have become stricter, meaning that borrowers need higher credit scores, more income and higher down payments. In addition, there are many challenges to financing an NJ real estate home, but the following 6 are especially problematic in today's market.

Higher Credit Score Requirements

If you are seeking an NJ real estate loan, you must have top-notch credit in order to be approved these days. Although consumers with credit scores as low as 620 can be approved for a loan, they are often required to pay high rates and fees. For example, in 2006, a 680 FICO score would get you into a house; now it takes about a 740.

Stricter Examination of Income and Assets

In years past, banks were lax in verifying income and deposits. Now, buyers seeking an NJ real estate home loan should be well prepared to answer any and all questions regarding their loan applications. Mortgage lenders today have to verify, re-verify, and re-verify information again. Qualified buyers are scrutinized and often denied due to appraisal or property issues, even if the buyer can prove they can pay cash for the property.

Home Appraisals are Coming in Low

NJ real estate experts say that because of sluggish sales, which lead to little comparables, and the large amount of lower-priced short sales, sheriff's sales and bank-owned sales, houses are not appraising for their contract price. Part of this problem stems from the government enacting the Home Valuation Code of Conduct, which regulates the appraisal industry and was meant to be an attempt to stop fraud, but has turned into an encumbrance on the real estate market recovery. Also, appraisals are now often completed by bank-appointed appraisers who are inexperienced and often unfamiliar with the markets they are working in, resulting in inaccurate appraisals and unnecessarily rejected loan applications.

Consistently Changing Borrower Requirements

Many borrowers are finding it very difficult to figure out just exactly what they need to do to be approved for a mortgage. According to NJ real estate agents, anyone with decent credit could get a loan for any size home. Now it is critical to have credit scores above 700, total debt ratios below 36%, a minimum of 20% down to avoid private mortgage insurance, and good, stable employment. Unfortunately, a buyer can have all of these items fall into the current guidelines, only to have the guidelines change."

Condo Purchases Are More Difficult

Condo loans are much tougher these days the condo building itself needs to be approved as well as the potential buyer. Cash reserves, owner occupancy rates, and delinquency rates on monthly assessments are among the criteria for a building to be approved.

Fewer Opportunities for Independent Contractors and Small Business Owners

Recently, Congress has introduced legislation that would make 'liar loans' illegal. "Liar loans" are another term for low- or no-documentation loans, which some borrowers have used to mislead their way into a mortgage they really did not qualify for. However, these loans are also a valuable tool for many honest workers who are not U.S. citizens or who are self-employed and do not receive regular paycheck stubs or have an easy, straightforward way to prove their income to lenders. Generally, a business owner pays himself the minimum amount in order to avoid paying payroll taxes while reinvesting profits into his business. Unfortunately, banks will no longer make exceptions for circumstances like these and many loans that would otherwise have been approved will be denied.

 

The real estate market is changing rapidly and expanding into new avenues almost daily. Sometimes it can be very difficult to find the answers you need on a specific topic or issue. In times like these, you need a real estate professional who will provide valuable information and trustworthy advice. For more information on NJ real estate, call us today or click here to be connected with one of our top real estate specialists.