A recession brings on economic uncertainty. Consumers aren’t willing to spend money, and banks aren’t always willing to lend it. But believe it or not, a recession is a good time to save money on a home loan, as long as you are prepared.
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.
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.
Make sure you can verify your employment, income and assets. It’s not just enough to tell the home loan provider that you have a job and some money in the bank. You will need to provide documentation like paycheck stubs and bank account statements in order to secure a home loan.
The documentation is even more important if you are applying for a home loan during a recession because the lender needs proof you can afford the home loan and will make the monthly payments. Collect the necessary documentation early and have it on hand prior to applying for the home loan.
Do not let the recession scare you away from a home loan. The recession is like the boogie monster. You were concerned that it was real when you were kid. Now you are grown up and realize its nonsense. The same applies to home loans when you think as a kid. You are scared the recession prevents them, when in actuality it’s just like the boogie monster.
Buying a home can be time consuming and intimidating, and buying a home in a recession can be downright frightening. But with some preparation on your part, you should be able to qualify for a home loan with competitive rates. See your home loan provider for answers to your specific questions. They can take the time to examine your situation and come up with a home loan that best suits your needs, recession or not.
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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