We are certainly living in some unprecedented times, to say the least. Nearly every aspect of our lives has been affected, and the home mortgage industry is one of them. Here are the key things you need to know when considering purchasing or re-financing a home.
Interest Rates
In early March 2020, we saw mortgage interest rates at all-time lows, which spurred a massive increase in refinancing and added fuel to an already hot housing market. Somewhat surprisingly, mortgage interest rates for a good number of lenders, after a period of large fluctuation, have generally settled in to a range nearing 20-year lows. There are still some lenders who have priced themselves out of the market (for reasons discussed below), but if you work with a mortgage broker who has access to loan products from many different lenders, he or she should be able to find you a great deal.
Rate Locking
With the enormous surge in refinancing, many lenders became inundated with loan applications. The time required for a lender to approve and underwrite a loan forced some borrowers to extend their lock period or risk lock expiration. Additionally, some lenders committed to more loans than they would eventually be able to sell on the secondary market, causing a temporary cash crunch that forced them to raise rates, effectively pricing themselves out of the market.
Today, many lenders have instituted a policy that prohibits locking an interest rate until a loan has been “cleared to close”, meaning all underwriting has been completed and can be closed within a few days. This has caused borrowers to feel a bit nervous during the underwriting process, uncertain to what their final interest rate will be.
Allow yourself some additional time, as much as 1 – 2 weeks, for your loan to go through the underwriting process. There are still lenders that are allowing for rate locks upon application, a working with a good mortgage broker will help you identify the right lender for your needs.
Lending Restrictions
Many lenders have increased their FICO score requirements for access to the most favorable rates and programs. In short, with all the uncertainty facing the financial markets, many lenders have upped the ante on qualification restrictions in order to present less risky loans to the secondary market
Appraisals
With most states under stay-at-home orders, home appraisals have been greatly impacted. Depending on the lender and the loan program, drive-by appraisals basing estimates on the home’s exterior, so-called desktop appraisals where an appraiser does an evaluation using public records and even video appraisals where homeowners provide a virtual walk-thru using Facetime or Google Duo could be employed in order to satisfy a lender’s appraisal requirement.
Employment and Income Verification
Sadly, millions of Americans have felt the pinch of this pandemic and have permanently or temporarily lost their jobs. When processing a home loan, lenders require a verification of employment during the underwriting process. During these times lenders may require an additional verification of employment just prior to closing.
Also, for borrowers that are self-employed, some lenders are reducing their current year earning potential calculation by as much as 25% to compensate for the potential loss of income during the pandemic, unless a borrower can show 12 months of reserves. Additionally, because of the extended tax filing date of July 15, 2020, all 2020 self-employed income must be supported by YTD financial statements in lieu of current year tax returns.
Forbearance
Many lenders have instituted a mortgage forbearance program for those homeowners negatively impacted by the COVID-19 pandemic. This allows qualifying homeowners the ability to defer monthly mortgage payments for a limited time. Of course, if a homeowner is currently taking advantage of forbearance, the option of refinancing is almost certainly impossible.
Bottom Line
For those that have not been negatively impacted by the COVI-19 pandemic, it is still a great time to buy or refinance a home. That said, there are several things a borrower should be aware of prior to jumping in – especially if there is a short closing deadline, as it could take longer to clear your loan for closing. As always, a good mortgage broker, like the experienced pros at CloseYour Mortgage, can help you navigate the uncertain terrain.
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