EXPLAINED IN A WAY YOU WILL UNDERSTAND
With the recent Pandemic of COVID-19 or the CORONAVIRUS declared by the World Health Organization on March 11th homeowners refinancing or others looking to purchase a new home have run into a roller coaster ride of changes in rates, guidelines, and terms.
The reason this matters to homeowners or future homeowners is mortgage and lending as any market is based on supply and demand. With a decrease in qualifying candidates and a decline in the overall economy, the Federal Reserve announced rate cuts. These rate cuts have been occurring since late February early March and were cut by more than 1.5%.
Find out more on the Federal Reserve and recent trends here : https://www.cnn.com/2020/03/15/economy/federal-reserve/index.html
With the dramatic decrease in mortgage rates, consumer demand surged up to a volume higher than ever before. Over 11 billion dollars in loans were “LOCKED” within hours, this was unexpected. Lenders found themselves with more applicants than they could handle, leading to “backlogs”.
What is LOCKED? – Locked is when all documentation has been verified and rates, payment and terms are LOCKED in.
What does BACKLOG mean? – A backlog is an influx of workload or finance that cannot be met.
With the increase in volume, lenders started to get picky. Basically lenders are looking for loans with a lower risk. At the end of the day, they want to protect you as well as themselves.
WHAT DO YOU MEAN BY PICKY?
A lender factors in 3 major parts to assess if a borrower will qualify:
When referring to the term “picky” these are the areas. First, they will look into making sure the borrower is still working and has a high probability of continuing to work and of course if they qualify with their current income.
Second, credit score and history always plays a major factor. If for any reason there has been a recent mortgage late, bankruptcy, foreclosure, or any other related issues this can hold you back from qualifying. Also the overall score. Lenders can usually work with scores as low as 580 but with the recent pandemic, there are “overlays”.
What is a good score VS bad?
- 580 to 640 — Poor
- 640 to 680 — Fair
- 680 to 740 — Good
- 740 to 800 — Excellent
Overlay – Where the lender is adding additional guidelines or requirements that exceed traditional guidelines set by feds.
The third major factor is equity. Depending on the program or if a borrower is looking to purchase or buy the equity requirements can differ. The main thing the lenders are looking for with the recent pandemic is that this will help the borrower. Cash-out scenarios have been a bit more difficult as well as purchases unless the borrower is in a terrific situation.
The main transactions at this point have been borrowers with fair to excellent credit as well as equity in their home simply looking to lower their overall payment.
WHEN SHOULD I CONSIDER A MORTGAGE?
As mortgage professionals, this is the main question we have been getting asked at The Mortgage Mentors, when?
No matter what it is in life, it is always good to be prepared. The same applies to lending.
Remember, rates change daily. Like a rollercoaster, they go up, then down. If you are considering a mortgage the best thing to do is be prepared.
No matter where you go or who you work with the required documents to qualify for a refinance or purchase are the same with every single lender.
Of course, if you are using an alternative program the required docs can differ but most will require the following:
- Lenders Package (1003, Borrowers Authorizations, etc.)
- DL & SS
- Income Taxes (2 yrs)
- W2 or 1099 (2yrs)
- Paystubs (Most Recent 30 Days)
- Bank Statements (Previous 2 Months)
Additional Docs for Refinance
- Mortgage Statement
- Homeowners Insurance
- Any Additional Property Docs (taxes, HOA, etc.)
Once your lender verifies the documents above and all parties have agreed on terms the borrower has the ability to LOCK the loan. Before that point, you cannot solidify anything discussed.
This is why at The Mortgage Mentors we are suggesting clients COMPLETE our Borrowers Package with FULL information.
At that point, we can review the client’s information. Once the items are reviewed a borrower can expect one of three options.
- YOU HAVE BEEN APPROVED!
- Let’s work on a few things
- DENIED (at this time)
WHY NOW OVER LATER?
There is no better time than now! When looking into a mortgage it is important to understand how things work. This is why it is important to turn over each stone and see how you can qualify!
Once a professional reviews the items they can help you!
From simple steps that you can take to help you improve your credit, to understanding if you need to look for a new co-signer, these are all important factors to discovering how to make your new home or rate a reality.