Whether you’re buying a new home or you’re hoping to refinance, getting a mortgage can be a big job. It’s doubly so right now as we adjust to the “new normal” caused by the global pandemic. While the real estate market is still quite strong and interest rates are at record lows, it can be more complicated to qualify. Here’s what you need to know to set yourself up for success.
Rates have dropped
First things first – interest rates for mortgages are at record lows. These are the lowest levels we’ve seen in a long time. That means it’s a great time to take out a new loan if you’re planning to buy a house. It can also be an excellent time to refinance your existing loan to get a better deal and save money on your payments.
Getting a mortgage is more complicated
However – it’s important to know that the pandemic has caused the mortgage process to become more complex. It is more difficult for lenders to complete the underwriting process, because many of the firms they work with, such as title companies, have reduced their services because of the pandemic. In addition, many of the steps of the closing process that normally happen in person are now happening online. This includes getting documents notarized, completing a home appraisal, and even signing documents at closing.
Your employment status is crucial
During normal times, your lender will want to verify your employment status before closing on the loan to make sure you can afford your payments. Due to record levels of unemployment caused by the pandemic, you will be required to prove to your lender your ability to pay several times during the process. Typically, a lender will check your employment status two or three times when processing your loan application. Now you can expect your lender to verify your employment and financial health up to ten times during the process. You will need to show that you are currently employed. If you are furloughed during that time, then your closing will be delayed until you return to work. Be patient and have your documents ready at all times to expedite the process.
Your credit score is more important than ever
Your credit score has always been an important factor when determining your eligibility for a home loan. It also factors into the rates and terms you qualify for. In the past, you could get an FHA loan with a credit score as low as 580. Right now, the number is closer to 620. The economic downturn we’re experiencing as a result of the pandemic has made lenders more nervous. This means that some are making their requirements stricter. The bottom line is that if you want to buy a home, then you should work on improving your credit score first.
Consider a refinance carefully
If you’re a current homeowner who wants to refinance for a lower rate, then you should carefully consider your situation. Are you planning to stay in your home for a long time? Then refinancing can be a smart financial move. But if you’re not sure you’ll be there for more than a few years, a refinance could end up costing you money. Remember to factor in closing costs and fees when you’re making your decision.