Coronavirus – Mortgage (Covid19) Home loans [What will happen] Mortgages (Home Loan) – What will happen to the Housing Market, mortgages and and FHA loans? VA loans – will they get tougher? Conventional Loans – FNMA and Freddie Mac loans. What will happen? Down payment assistance loans? Will they continue?
0:27 Credit Tightening
2:00 Changes in the Industry
3:32 Standards for Buying
4:42 What Does The Future Look Like?
9:12 Reach Out to Us!
Buying a home and need to know how the coronavirus might impact your mortgage qualifications? Super important mortgage information if you are buying or considering buying a home now during the Covid19 crisis. Most home loans and mortgages are being impacted because of the COVID19 virus.
Things are going to get tougher in the entire loan business. Not like the last time in 2007. That was caused by an entirely different situation. That was caused by bad loans that never should have been done. The foreclosure rate went through the roof and millions of people lost their homes. The Supply of homes available became tremendous.
The economy was awful and no one could afford to buy a home. The Demand was low as no one could afford to buy the homes.
Fast forward to today – the supply of homes for sale, is very low and there is a great demand for homes. Millions of families want to buy their own homes, and so many were in the process of buying! But… along comes the COVID 19 which changed the world’s financial situation and cast doubt on the world economy.
Today’s situation with COVID 19 which as you know is a worldwide pandemic, has surely changed the American home loan industry.
This has created a tightening of the mortgage industry and the risk level that mortgage banks are willing to accept.
How do banks tighten credit? Couple of ways to do that:
1) Raise credit score requirements – the risk to a lender is much lower with an 800 fico score client as they have a strong reputation proven on their credit report – as a person that takes paying their bill and credit availability in a very responsible manner.
While bad things all too often happen to good people, people that have lower credit scores, very often do not view paying bills on time and ensuring that they pay their responsible bills back, with the same level of importance thus the lower score and higher risk to a mortgage company. So… the Lenders may raise the rates further on those that have low credit scores to offset the risk.
2) Raise the down payment amount – This one is obvious – who has “more skin in the game” and will usually jump through more hoops to pay their mortgage and ensure that they do no lose their home to foreclosure?
Is it the person that put a 20% down payment, or the person that put a 3% or even zero down payment? The answer is obvious! So the lenders may require a larger down payment or… raise the interest rate to help offset the losses from the risk.
3) Require that a buyer has reserves left over after the close of their loans. Often government loans (FHA Loans, VA Loans & USDA Loans) require zero reserves after closing a loan. What happens with the Corona 19 virus with so many being laid off?
4) Lower the debt ratio allowed to qualify. Lenders are doing this now.
If a borrower is allowed with an FHA loan to use 57% of a family income for house payment plus, monthly debts (car payments, credit cards, student loans, installment loans, child support alimony, etc) then lowering the debt ratio allowed will lower the risk to the lender.
Many lenders are combining risk factors. As an example, if your fico score is 640, they might allow a debt ratio of 40, with a fico score of 680 they may allow a debt ratio of 45 and with a 720 fico the debt ratio maybe 50%. With a 700 fico score and 2-month reserves, they may allow a 57% debt ratio, etc.
There are so many variables in the mortgage industry today, please feel free to reach out by email and or text and I’ll do my very best to get back to you and answer all of your questions.
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