Unique economic and health uncertainty have changed our daily lives, our interactions, and the way we conduct business. For some of us, it has offered new perspective into our wants and needs. A home where once content, we’ve now discovered it’s time to make a change.
With record-low interest rates and low inventory, our local real estate market has become a competitive race for buyers to find their next home. Now more than ever, it's critical to be pre-approved before starting your search if you want to stay ahead of the pack. Read on buyers, there are some post-COVID new norms when it comes to home financing you’ll need to keep up with.
We talked to a couple of local lenders and here are 5 important things you need to know about new lending requirements:
Credit score requirements
“Prior to the pandemic, you would see credit scores as low as 580 – 620 being accepted by many lenders,” states Karylle C. Wike, Senior Vice President at Town and Country Bank,. “Now, this minimum has been raised to 620, or an even higher credit score requirement, to qualify for certain loan programs.”
Another key point to note, explains Melanie Binder, Branch Manager of Draper and Kramer Mortgage, “credit reports are only good for 60 days, previously 120 days. So if you were pre-approved a couple of months ago, be sure to reach back out to your lender to make sure nothing has changed with your credit report or your loan options.”
Verification of employment
“By far the trickiest and most complex change is the verification of employment,” Wike points out. “Financial institutions are actually checking to make sure the buyer is still employed, there has been no change in employment status, and the buyer isn’t furloughed one to three days prior to closing. If the customer has an income change, or is furloughed, and we aren’t aware of it until we do the verification, the closing could fall apart the day before. It’s very important for buyers to understand that any change in income, needs to be communicated to the lender immediately.”
Speed of the transaction
When submitting your offer, updates to the purchase agreement now reflect anticipated closing dates of 30-60 days. This is further validated by Binder who comments that “the mortgage industry is very busy with refinancing and purchases so loans are taking a little longer to close. Though purchases take priority, the average closing times are ranging between 35-45 days now.”
These difficult times have contributed to some buyer’s experiencing financial hardships. “If a customer has taken advantage of forbearance amid the COVID pandemic,” notes Wike, ”this can slow or stop the process for refinancing or even purchasing a new home. Banks cannot close on a new loan until a borrower is completely out of forbearance and has made all payments current from their own funds. This can get tricky as most places will inform their customers that taking the offer will not harm them. While this is true in the short-term, this could cause complications in securing a new loan or even on their current loan when their time is up and they are required to pay their balance current.”
Loan Program availability
When looking for a home loan, it’s always important to know your options. Take heart buyers as many programs are still available. Binder notes that “First time home buyer, FHA, VA, and Rural Housing loans are still being offered by many lending institutions though higher credit scores of 620 or higher may be required.”
For buyers considering an investment opportunity, Wike cautions because “interest rates are actually quite a bit higher at this time on an investment purchase.” She further explains “this can be difficult for the buyer to understand when all they hear from the media is that rates have dropped.”
Though unprecedented circumstances have led to changes in lending requirements, they’ve also offered us some advantages and silver linings. "This is a great time to upgrade to your dream home," states Binder.”With rates the lowest we have ever seen, borrowers are able to leverage more buying power as lower rates mean lower payments." Binder further explains, "Borrowers can now qualify for more expensive homes allowing them more flexibility to find what they are really wanting and needing."
Even during inclement weather, there is always a break in the clouds. Now may be your opening and the perfect time to make your move. Brinkoetter Realtors is here to help you find your way home.
We want to extend a special thanks to contributors Melanie Binder, Branch Manager at Draper and Kramer Mortgage Corp., and Karylle C. Wike, Senior Vice President at Town and Country Bank, for your thoughtful insights.