4 things that may complicate your home-buying process during the coronavirus pandemic
- Some mortgage lenders are making it more difficult to get a loan during the pandemic because they're trying to slow down the influx of applications and only lend to people who can afford to make mortgage payments.
- Certain lenders are requiring higher credit scores than in the past, and some are asking for larger down payments.
- To make sure you're financially stable during the economic crisis, lenders might ask for more financial documents than they did before the pandemic.
- You could face delays with appraisals or inspections, depending on how strict your state is about businesses reopening.
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For many Americans, applying for a mortgage looks different than it did a year ago. The good news is that mortgage rates are at historic lows. The bad news is that many lenders are increasing their standards for borrowers during the coronavirus pandemic.
"The more uncertain our economy is, the harder and stricter underwriting guidelines become," said Zoey Cigar-Hodge, mortgage expert at Better.com. "A lot of lenders have had these broad gauge identifiers, like FICO scores, that they increase because they only want the most qualified buyers."
"With the Fed cutting rates so low — we're at an all-time low — it has caused a huge demand of borrowers looking to purchase and refinance their homes, all at the exact same time," she continued. "And a lot of lenders don't have the capacity to deal with this."
Lenders are making it more difficult to qualify for a mortgage because a) they're trying to slow down the influx of applications, and b) many Americans are struggling financially right now, and they don't want to lend to someone who won't be able to make mortgage payments.
Here are some things you'll need if you want to get a mortgage or refinance your home in the near future.
It will help if your credit score is over 700
Even before the pandemic, a high credit score boosted your chances of being approved for a mortgage and helped you land a lower rate. But now some lenders are increasing their minimum credit score to 700 or higher.
Cigar-Hodge said that even lenders like Fannie Mae have raised their credit scores for certain types of loans.
Not all lenders have increased their credit score requirements, though. If you're considering a lender that has increased its credit score requirements, you may still be able to find another lender that will accept your application with a lower score. Cigar-Hodge recommended focusing on making other parts of your application impressive, such as your debt-to-income ratio.
"Ideally, you would want your debt-to-income ratio to be at 30% or lower," she said. "The lower that can be, it helps balance out if you have a lower credit score or you're putting less than 20% down."
You might need a higher down payment
Some lenders are requiring more money toward a down payment than they asked for before the pandemic, up to 20%.
However, Cigar-Hodge said higher down payment requirements aren't as common as mandatory high credit scores right now. If you talk to a lender that has raised its minimum down payment amount, then you can probably find another lender that will accept less.
Gather as many financial documents as possible
Because so many Americans are facing financial hardship during the pandemic, some lenders may require more proof than usual that you're financially secure.
"Anyone looking to get a mortgage right now should just get all of their income and asset documents gathered, because underwriters are going to want more information than they usually would," Cigar-Hodge said. "So have at least two years of tax returns and W-2s."
"I'm only speaking for Better.com," she said. "We only account for two years. Some other lenders may have longer periods of time they want to account for."
You may need to be flexible with your timeline
With the influx of mortgage and refinancing applications, some lenders may take longer than usual to process your application. Application approval may go more quickly with online lenders that process your information digitally, though.
But other parts of the process, such as the home appraisal or inspection, may take longer than you'd expect.
"At the beginning of the pandemic, there was more of an impact with appraisals delaying, because borrowers didn't want someone to come into their home," Cigar-Hodge said. "And a lot of businesses just closed completely, so we couldn't even get an appraiser out to them. But now that states are opening up, it's really state by state."
Each state has its own guidelines about reopening during the pandemic, so depending on how strict your state is, you could face longer wait times during the closing process. If you're in a time crunch, factor delays into your timeline.
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