When you want to refinance a home , there are certain qualifications that you have to meet. During a recession, those qualifications tend to change a bit. It becomes more difficult to get approved for the loan that you want because lenders tend to act differently during a recession. Here are a few things to consider about refinancing during a recession and how hard it is to get approved.
Increased Credit Scrutiny
When a recession is taking place, lenders want to make sure that you are credit worthy. Usually, there are many foreclosures taking place during a recession. This leads lenders to be a little more cautious with the money that they lend out. They want to avoid giving a loan to someone that they are going to have to foreclose upon in a few months or years.
This means that they are going to scrutinize everything on your credit report. If there are any blemishes on your report, they will most likely ask you to explain them. They will want to know exactly what went wrong and make sure that they feel comfortable that these things will not take place again.
During a recession, they will usually raise the minimum credit score that they will work with as well. This means that a credit score that is considered decent during a good economy may not work when a recession takes place. Depending on your score, you may not be able to qualify for
a loan at all.
This is not to say that lenders do not like to give loans during a recession. Providing loans is how they stay in business. This means that they want to process as many loans as possible, but they are a little more selective with whom they loan to because of the economy.
When the recession is on, mortgage lenders are going to want to make sure that you have steady employment. If you have a steady income that can be relied on, they will feel much better about giving you the money that you want. If your job is questionable or your income is not quite big enough to support the loan amount, they will look negatively on your application.
During this time, they will also be very skeptical about those that want stated income loans. When the economy is good, they will frequently use these loans for those that are self-employed or work on a cash basis. However, when there is a recession, they will not like to give out these loans very often. Many people would be willing to inflate their incomes on the application to make their situation look better than it actually is.
If you are applying for a refinance during a recession, you better be ready to verify all of your income. If you say that you make a certain amount of money, you need to have documentation to back it up.