COVID-19 changed a lot for people, and not just about their health. Most people’s finances changed too, including the way they get a mortgage.
Residential mortgage lending initially saw a dramatic increase in its requirements, making it much tougher for anyone to get a mortgage. As we continue to navigate the pandemic, the requirements aren’t as strict, but many things are different.
Tougher Credit Score Requirements
Overall, credit score requirements remain the same for all loan types. The regulators haven’t tightened the requirements yet, but many lenders tightened the requirements themselves. Since lenders underwrite and fund the loans, they are at risk.
It’s not unusual to find lenders who want higher minimum credit scores than usual. For benchmark purposes, here are the minimum credit score requirements for most loans:
- Conventional loans – 660
- FHA loans – 580
- USDA loans – 640
- VA loans – 620
Many lenders require higher scores than above, especially if there are other ‘risky’ factors. Your best bet is to improve your credit score as much as possible before applying for a loan. Pull your credit report and see what you may need to fix, such as late payments, high credit card balances, or unpaid collections.
Tougher Income and Employment Verification
Along with lower credit scores, many borrowers have inconsistent employment. The pandemic caused millions of people to lose their jobs and lenders want to make sure you aren’t one of them before they give you a loan.
If you are employed and have pay stubs and W-2s to show for it, you should be in good shape. Fannie Mae and Freddie Mac (the guarantor of conventional loans) relaxed the verbal verification of employment guidelines, giving lenders more leeway to get loans closed even if they can’t get a hold of lenders on the phone. They recognize that millions of people now work from home and many employers aren’t easily contacted.
Appraisals are more Relaxed
One area most lenders and loan programs agree on is the appraisal. With COVID-19 still running rampant, most people don’t want someone inside their home. Lenders can accept different appraisal options include:
- Drive-by appraisals – The appraiser just evaluates the exterior of the home. He does not go inside. He uses any information available about the home from other documentation and pictures from the homeowner.
- Desktop appraisals – Appraisers use public records and the Multiple Listing Service information to come up with a home value. They rely on the homeowner’s pictures and provided information as well.
You may find that it takes a little longer to get a loan for two reasons.
One, lenders are extremely busy right now with interest rates so low. Everyone is trying to refinance and take advantage of the lowest rates we’ve seen in decades. Two, lenders are trying to be as careful and selective as they can to ensure that we don’t experience another housing crisis like we did in 2008.
It’s the lender’s job to make sure everyone they approve can afford the loan and won’t find themselves in hot water in a few months.
Closings Look Different
Finally, closings look a little different. Everyone isn’t gathering at the title company like they used to do. Now, most closings take place in the borrower’s home. A closer may come to the home, but in some states, the closer sits in his/her car or conducts the closing via Zoom or another online platform.
COVID-19 changed the way mortgages look today, but not so much that they aren’t recognizable. You can still get a mortgage, it may just take a little longer to get through the pipeline and/or to get all the necessary documentation completed.Click to See the Latest Mortgage Rates»