Gone are the days when a homebuyer could sign his dog's name on the mortgage application and get approved in a day. And that's a good thing. Too many young consumers, however, are concerned their credit scores won't make the cut when it comes to financing a home today, and they may be right.
"We're still seeing credit remain relatively tight," Jonathan Corr, CEO of mortgage processor Ellie Mae, said in a release.
About a third of future first-time homebuyers say their credit score might hurt their ability to buy a home and that 45 percent said they have delayed a home purchase in order to improve their credit, according to a new survey by Experian. One in 5 said they were likely to opt out of the mortgage process or buying a home all together for the next five to 10 years.
"Your credit profile is one of the factors that can have a substantial impact on securing a home loan because it is used by lenders as an indicator of your financial health," said Rod Griffin, director of public education at Experian. "It is important to take steps early in the homebuying process to allow time to make changes and have those changes be reflected on your credit score."
Nearly three-quarters of those surveyed said they are working to improve their credit, paying down debt, making sure bills are paid on time and even taking steps to protect their credit from identity theft and fraud. Still, just 30 percent of homebuyers in March were first-time buyers, well below the historical average.
"With rents steadily rising and average fixed rates well below 4 percent, qualified first-time buyers should be more active participants than what they are right now," said Lawrence Yun, chief economist for the National Association of Realtors.
"Qualified" is the key. The latest reports from the Federal Reserve continue to show a very conservative lending environment with little loosening. Building credit today is more crucial than ever.