Getting a mortgage, paying your mortgage, refinancing your mortgage: These are all significant undertakings, but during a pandemic, it all becomes more complicated. Sometimes a lot more complicated.
But make no mistake, home buyers are still taking out loans, buying homes and refinancing mortgages during the current global health crisis. There have, in fact, been some silver linings amid the economic uncertainty—primarily record-low interest rates—but also plenty of changes to keep up with and mortgage lending today looks much different now than at the start of the year.
Whether you’re applying for a new mortgage, struggling to pay your current mortgage, or curious about refinancing, here’s what you need to know.
1. Rates have fallen, but getting a mortgage has gotten more complicated
First, the good news about mortgage interest rates… rates have been very low in recent weeks, and have come back down to their absolute lowest levels in a long time.
That means this could be a great time to take out a mortgage and lock in a low rate. But getting a mortgage is more difficult during a pandemic.
Across the industry, underwriting a mortgage has become an even more complex process. Many of the third-party partners that lenders rely on—county offices, appraisal management and title companies—have closed or taken steps to mitigate their exposure to COVID-19.
Even if your lender allows you to file your mortgage application online, many steps in the process traditionally happen in person, such as getting notarization, conducting a home appraisal, and signing closing documents.
As social distancing makes these steps more difficult, you might have to settle for a “drive-by appraisal” instead of a thorough, more traditional appraisal inside the home.
Curbside closings with masks and gloves are common as are at home closings with documents being mailed to the borrower to sign in the comfort and safety of their home, before being over nighted or delivered to the title company by the buyer’s agent.
2. Be ready to prove (many times) that you can pay a mortgage
If you’ve lost your job or been furloughed, you might not be able to buy your dream house (or any house) right now.
Whether you are buying a home or refinancing your current mortgage, you must be employed and on the job. If a consumer has a loan in process and becomes unemployed, their mortgage closing must be delayed until they have returned to work and received their first paycheck.
Lenders are also taking extra steps to verify each borrower’s employment status, which means more red tape before you can get a loan.
Normally, lenders run two or three verifications of employment (VOEs) before approving a new loan or refinancing, but we are now seeing employment verification needed as many as seven to 10 times—sometimes even every three days. Today’s borrowers need to be patient and readily available with additional documents during this difficult and uncharted time in history.
3. Your credit score might not make the cut anymore
Economic uncertainty means elevated risk and risk makes lenders nervous. In response some lenders are raising their requirements for borrowers’ credit scores.
Many lenders who were previously able to approve FHA loans with credit scores as low as 580 are now requiring at least a 620 score to qualify.
Even if you aren’t in the market for a new home today, now is a good time to work on improving your credit score if you plan to buy in the future.
While these changes are temporary, we expect them to stay in place until the entire country is opened back up and the unemployment numbers drop considerably.
4. Forbearance isn’t forgiveness—you’ll eventually need to pay up
The CARES (Coronavirus Aid, Relief, and Economic Security) Act requires loan servicers to provide forbearance (aka deferment) to homeowners with federally backed mortgages. That means if you’ve lost your job and are struggling to make your mortgage payments, you could go months without being required to make a payment. But forbearance isn’t forgiveness and borrowers need to do their research. For example if your loan is put into forbearance, you will need to wait three months to refinance or buy a new home after your forbearance ends and you have made three consecutive payments.
But again the CARES Act is not designed to create a freedom from the obligation, and the forbearance is not forgiveness. Missed payments will have to be made up.
You’ll still be on the hook for the payments you missed after your forbearance period ends, so if you can afford to keep paying your mortgage now, you should.
To determine if you’re eligible for forbearance, call your loan servicer—don’t just stop making payments.
If your deferment period is ending and you’re still unable to make payments, you can request delaying payments for additional months.
After you resume making your payments, you may be able to defer your missed payments to the end of your mortgage. Check with your loan servicer to be sure.
5. Don’t be too fast to refinance
Current homeowners might be eager to refinance and score a lower interest rate. It’s not a bad idea, but it’s not the right move for everyone.
Homeowners should consider how long they expect to reside in their home. They should also account for closing costs such as appraisal and title insurance policy fees, which vary by lender and market.
If you plan to stay in your house for less than two years, for example, refinancing might not be worth it as hefty closing costs could offset the savings you would gain from a lower interest rate.
That said, mortgage rates are incredibly low, and if you secured a mortgage in early 2019, 2018, or 2017, you’re likely a solid candidate for a refinance especially if you intend to stay in your home for any extended length of time.
It’s also important to remember that refinancing is essentially underwriting a brand-new mortgage, so lenders will conduct income verification and may require the similar documentation as the first time around.
6. Now could be a good time to take out a home equity loan
Right now, homeowners can also score low rates on a home equity line of credit, or HELOC, to finance major home improvements like a new roof or addition.
This may also be a great time to take out a home equity line to consolidate debt. This process can help to reduce your total obligations on a monthly basis and allow for the balance to be refinanced into a much lower rate.
Just be careful not to over improve your home at a time when the economy and the housing market are both in flux.
If you, or someone you know is considering Buying or Selling a Home in Columbus, Ohio please give us a call and we’d be happy to assist you!
The Opland Group Specializes in Real Estate Sales, Luxury Home Sales, Short Sales in; Bexley 43209 Columbus 43201 43206 43214 43215 Delaware 43015 Downtown Dublin 43016 43017 Gahanna 43219 43230 Grandview Heights 43212 Galena 43021 Hilliard 43026 Lewis Center 43035 New Albany 43054 Pickerington 43147 Polaris Powell 43065 Upper Arlington 43220 43221 Westerville 43081 43082 Worthington 43235