Much has changed in the lending industry especially in the face of the ongoing pandemic. Prior to this, applying for a mortgage basically required a credit score of at least 647 (from the Feds’ Q1 November 2019 report), as well as the basic paperwork showing proof of identity and good financial standing. And even if you ended with a score less than 647, you could still find lenders willing to offer mortgage terms, although with additional costs, to buffer the risk of non-payment.
The initial scare
When the Feds adjusted interest rates to rock-bottom lows to counteract the effects of the pandemic-induced economic slowdown, mortgage rates took the same cue. While this became a signal for both real estate investors and eager homebuyers to take a chance on properties with previously stratospheric price points, mortgage lenders reacted to the presumably volatile market environment by protecting their assets and avoiding risky transactions.
Credit score requirements were increased and mortgage application became more stringent. Big-name financial institutions like JPMorgan Chase & Co. and Wells Fargo started the trend, hoisting minimum credit scores to a range between 680 and 700 and marking a strict 20% minimum down payment. Only a few lenders were willing to risk their investments on clients who are seen to possibly fold under the economic pressure and miss out on payments. Even refinancing was not an option immediately provided by lenders.
Brighter days ahead
The pandemic jump-scare of 2020 among mortgage lenders seems to have died down as most of the country is regaining its economic footing. Proof of this is the increase in mortgage credit availability to 5.2% at the end of the second quarter of this year from last year’s below-5.0% levels.
The financial services industry has also learned to adjust to the new normal by allowing for more flexibility in the way their clients will be able to pay their monthly dues. This is good news especially for self-employed individuals who experienced difficulties in proving their financial capacity at the onset of the pandemic.
Tedious screening of applications
There may be more flexibility in mortgage payments these days but one condition that prevails despite the improved economic climate is the rigid screening of mortgage applications. Borrowers are now required to supply information on their financial and employment situation after the pandemic hit. Those applying for refinancing are also asked if their reason for the application is job loss or financial hardship.
While lending institutions are simply making sure that they won’t incur losses from mortgage payment defaults, the additional step in the application process has resulted in longer processing times. And this may go on until 2022 under the present conditions.
The borrower’s initiative
It becomes imperative for the borrower to also ask the lender just as many questions, especially ones that will involve taking advantage of mortgage points and other discounts. Mortgage points can be beneficial for those buying a property for the long haul, past the time when they have already been able to get back their upfront expenses from buying the said property.
Discounts like mortgage points are the borrowers’ initiative toward gaining more flexibility in their loans. Whether getting this for a new purchase or for refinancing, it helps in buffering the strict conditions in mortgage application.
Talking to a knowledgeable real estate agent for your mortgage options is a good idea to mitigate any financial issues that may come about in your home-buying journey. In Colorado, you can talk to us — the Noel & Martinez Team. Contact us today.