Amid a pandemic, should applying for a mortgage be on top of your mind? Is this really a great time to invest in property? And if it is, how are you going to go about applying for one when we are being asked to practice social distancing and when risks are at an all-time high for lenders? Many believe that the housing and financial crisis in 2007 to 2008 was due to the government’s decision to allow borrowers to refinance their loans, thus trapping the borrowers and lenders in a never-ending cycle.
Financial institutions are trying to break this cycle now. The CARES Act is allowing borrowers with federally backed mortgages to ask for payment reprieve of up to a year. Lenders can’t do anything but follow the law, of course, though they are now making it harder for borrowers to apply for a loan.
It sounds impossible to get approved for a mortgage when the economy is on the brink of a recession. However, many are moving away from the city and into the suburbs. They need these mortgages to finance such a move. They’re the ones who are in dire need of a loan. How should they apply for a mortgage? Will they get the approval they seek?
Understand That Things Are Different Now
One of the first things you need to understand is that mortgage applications and rates are different now. To get excellent mortgage rates, you have to talk to a broker who can also assist you in applying for a mortgage now. Since the coronavirus outbreak, things are different in terms of requirements and qualifications.
Banks are trying to protect themselves from losses. That’s why they raised the minimum credit score and down payment requirements. They also stepped up the verification process. Some lenders are requiring borrowers a credit score of at least 700 and a down payment of 20%. Before the pandemic, borrowers can qualify for a loan with a FICO credit score between 580 and 669. Borrowers can also put a down payment as low as 3% of the total amount of the loan.
Some lenders are even asking for three months’ worth of escrow payments and a 20% down payment for jumbo loans. These loans refer to loans that are higher than the Federal Housing Finance Agency limits. Normally, a one-unit house has a limit amount of $510,400. If the money you are borrowing is more than that, it’s a jumbo mortgage.
Take a Look at Your Finances
How has the coronavirus pandemic affected your finances? Did you lose your job? Is your business earning more? Did your credit score take a hit because of the pandemic? Lenders will look at your current financial situation. They won’t care that you used to earn $80,000 annually. If they see that your income dipped amid the pandemic, you’re going to have a hard time getting a loan.
The same can be said for self-employed borrowers. Although consultants and freelancers often earn more than those employed by companies, they do not have a steady income. People working in the gig economy will have a harder time qualifying for a loan because of the nature of their unsteady income.
You can now apply online for a mortgage. You have to ready all your requirements, fill up the form, upload copies of the documents required, and wait for a call from the bank’s agent. Usually, the processing should take a couple of weeks. Lenders are now trying to make the procedure faster, though.
It takes a lot of guts to want to apply for a mortgage during these trying times. You should understand the risk you are taking, and also realize the risks that the lenders are taking for you. Readying yourself for the commitment of repaying these loans is, of course, the first step you should take.