The Coronavirus (COVID-19) has had many affects on the mortgage lending industry, but these are not unfamiliar adjustments. The industry had experienced similar overnight changes during early 2008. The difference this time is not a housing bubble, but a global health crisis.
COVID-19 caused immediate layoffs and slowing of the economy requiring mortgage lenders to quickly adjust with lending restrictions, additional verifications and even suspending some products. This shift in mortgage loan products is to avoid the risk of payment defaults. Mortgages that are considered a higher risk are what has seen the most restriction. These are changes that have been made across all states and the industry as a whole. We anticipate that many of these changes will be short-lived, but there is no set end date. Changes can happen rapidly, without notice, so we are here to guide you through this shift in the market.
We share this insight with you, not to alarm you, but keep you informed and able to navigate this unique environment with the power knowledge.
Where has there been the largest shift?
Increased credit score requirements to 640: Mortgage markets have shifted to more conservative loans to avoid delinquency is focused heavily on credit score. Previously, credit scores as low as 581 where allowed on government loans (FHA, VA & RD). In our current environment the minimum has been set at 620, with most companies moving to 640 and some banks as high as 660.
The shift in credit score requirements has reduced the number of consumers who qualify, but that makes it more important then ever to understand credit. We are often able to provide valuable knowledge that can assist in not just a better understanding of how credit scores work, but also provide a path to improving your credit to qualify for a home mortgage.
Affect on a Home Purchase
Home Purchases continue with the new “normal”: The new normal includes taking advantage of all the technology that is available to us; phone apps, zoom meetings, secured portals and digital signatures. In person meetings are still possible with masks and social distancing.
The other affect on home purchases is the major rush of buyers to the market. The spring market was held back with the onset of COVID-19 now all those buyers are joining in the summer market. This is still a heavy sellers market with homes being sold over list price with multiple offers. This is not something to be discouraged about, but you do need to be pre-pared and educated on how to strategically deal with this unique market. (Read More on Purchasing during COVID-19)
Affect on a Home Refinance
Adjustments on Cash-Out Refinances: Mortgage Refinance numbers continue to surge with interest rates remaining at all time lows. Other than the change in credit score requirements the primary affect on refinances has been to those wanting cash-out. The more conservative market has put adjustments on cash-out mortgage transactions, as they can be seen as a higher risk product. This makes the interest rates on a cash-out mortgages higher than a traditional rate and term mortgage. Interest rates for cash-out are still very low, but may not seam as attractive as advertised rate and term options.