RATES REMAIN LOW, BUT HOME LOANS ARE HARDER TO GET

July 6th, 2020 by

While I would not say the Chicagoland real estate industry is booming (we are definitely below the expectations for the peak buying season due to Covid-19), there is still a good deal of activity in the marketplace. Many people are sticking to their long-term plans of buying a home this spring, and some investors are viewing the pandemic as an opportunity to buy. If you are in the buyer’s camp this spring, be prepared for more stringent lending requirements and quite possibly a larger down payment. 

As layoffs, unemployment, and uncertainty continue, lenders are still anticipating an uptick in delinquencies and the inability for folks to keep up with their payments. As a result, many lenders have revised their qualification requirements upward, with some lenders not willing to make conventional loans unless an applicant has a credit score of 700 or above and at least a ten or twenty percent down payment. Other lenders have revised their conventional loan requirements up from the pre-Covid standards, but not as drastically. 

If you are planning on a Federal Housing Administration (FHA) or Veterans Administration (VA) loan backed by the government, the good news is that FHA and VA have not raised their minimum credit score standards during Covid-19; they remain at the pre-Covid levels for minimum qualification. The bad news is that these are only minimum qualification standards; the end lenders have a right to set their own standards on these loans, and many if not most have raised their standards right now. Many brokers are reporting minimum acceptable scores in a range of 580-680, making it more difficult to find a lender to give you the loan despite your meeting minimum qualifications. 

Lenders are also taking income, employment, and credit verification more seriously, checking on statuses throughout the loan process and sometimes up to the day of the closing. This means buyers can expect to provide more detailed information, and your employer is likely to be contacted to confirm employment. 

But the above does not mean you are out of luck if you are looking to buy and meet the criteria to do so. Mortgage rates are still historically low, and despite the above changes we are still seeing many folks take advantage of the current market and the needs of others to sell their homes. Many smaller lenders are taking advantage of the larger lender’s restrictions to provide loans, so credit is still available.  

Here are a few steps to take if you are looking to buy in today’s market:

Shop around for the best rates and for prequalification.

Yes, this means speaking to several lenders and providing them with your information, but this will enable you to better ensure your qualification and secure the best possible deal.

Keep Your Credit Score Up

As is always the case if you are looking to buy a home, take steps to ensure your credit stays within an acceptable range. Just as your loan officer will advise, do not make any large purchases or apply for additional credit during your home search or closing period. Be careful not to default on any bills or make any late payments. Be patient. The market is opening up slowly with more inventory is coming back on the market, but folks are a little more hesitant to allow people in for showings. Be prepared to look at properties virtually and be flexible in your desire to view the property. 

When In Doubt, Seek A Professional Opinion

Finally, when in doubt rely on the advice of competent, experienced agents, loan officers, and attorneys. These folks are there to help you to best understand and navigate the home-buying process as it stands today, and are an invaluable resource!  

Written by Terry M. Fogarty 

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