Can I get a mortgage in today’s environment?

With all the media saying you can’t get a loan, we thought we would take a closer look to see what is really going on. We have hundreds of houses pending per week, are they all cash?  Over the last 2 weeks, 846 homes have closed out in the Central Virginia area. Of those, only 91 were cash deals. 470 were conventional loans, and 270 were government-backed loans.  This means loans are still closing! Both conventional and government-backed. We interviewed two local lenders, Kristin O’Neil with Home Loan Zone, and Jason Richardson with NFM Lending about what’s going on in the market. This is what they had to say: 

KC: Are you still lending money?

 KO: Yes! Despite Covid-19, March was a record-breaking month for many lenders and mortgage companies so they are definitely still lending money. A large part of this is due to the fact that interest rates are roughly 3/4 points lower than they were this time last April. With an increase in forbearances lenders are definitely tightening up in some areas but this is still a great time to purchase and the majority of prospective homebuyers will not be impacted.

JR: Until investors have a clearer picture as to the short-term and possibly long-term consequences of COVID-19, they are taking a very conservative approach to mortgage lending.

 KC: What’s the biggest change in lending? 

 KO: The biggest changes we are seeing are government loans; FHA, VA, and USDA. For the most part, conventional loans have not been heavily impacted. For those seeking jumbo financing (a loan amount over $535,900 for Richmond City and the majority of the surrounding counties) financing is still available, but we may need to structure it a bit differently than we would have a month ago.

JR: In short, investors do not yet know what the potential consequences may be and therefore do not have an appetite for riskier loan scenarios.  As layers of risk are added, pricing and/or availability becomes more challenging.  

KC: Anything you are not doing now?

 JR: Unfortunately, yes.  Some loan products have been affected by the current environment in terms of either availability or pricing. Loans that are currently unavailable include renovation loans, construction loans, and alternative documentation loans for self-employed borrowers using bank statements as a source of income. Loans that have limited availability include jumbo loans, high-balance conforming loans, and investment property loans. Loans that are available but with unfavorable pricing (depending on credit score) include cash-out loans, 2nd homes, and government-backed loans, as well as renovation loans. 

KC: How have minimum credit score requirements changed? 

 KO: Fannie Mae, Freddie Mac, FHA, etc. have not actually increased their minimum credit score requirements. The credit score overlays we are seeing are different from lender to lender. Now more than ever, it is so important to stay in close contact with your mortgage loan officer to keep on top of program updates, restrictions, guidelines, etc.

 Regardless of the current climate the higher you can potentially get your credit score the more money it will save you in the long run.  If you have any concerns with your credit score I would highly suggest reaching out to your mortgage loan officer now to discuss minor changes you can make that can potentially make a huge difference.

 KC: Employment verification is at the last minute in lending. Do you need to work with HR departments to have good contact?

KO: With many human resource departments working remotely it can be a bit more difficult to obtain verifications. Many large companies use 3rd parties who complete these verifications electronically such as “The Work Number.”  Unfortunately, these sites typically will only update every few weeks and for most scenarios, we will need an up to date verification 24-48 hours prior to closing. It is a good idea to locate someone at your company upfront whether that be HR or a supervisor who would be willing to complete this verification prior to closing.

 KC: Have reserves changed?

 JR: Lenders largely adhere to the reserve requirements as outlined in the automated underwriting findings.  However, some lenders have adopted a more stringent reserve requirement, and it is not uncommon to see a minimum reserve requirement of two months in some cases.  It is important to keep this in mind when budgeting for not only the down payment and closing costs but for reserves as well because the source of these funds will need to be verified during the loan process.

 KO: We may start to see an increase in the number of months of reserves required on certain loan programs. If needed, this would typically be an additional 2-6 months of proposed mortgage payments set aside in addition to your down payment and closing costs.

 KC: What are your overall suggestions for buyers?

 JR: From a lender perspective, I always emphasize the importance of knowing your numbers in advance of starting your home buying journey.  This includes knowing your credit scores (Character), qualifying debt ratio, and maximum monthly mortgage payment (Capacity), price range (Collateral), and cash required for closing (Capital).  These are known as the 4 C’s of credit (Character, Capacity, Collateral, and Capital) and these are the same numbers that will weigh heavily in deciding whether to approve your loan.  As we return to a more normalized environment, there will be a flood of prospective homebuyers and with an inventory shortage, the competition will be fierce.   The best way to stand out from your competition is to work with your lender to get a full pre-approval so you can make a qualified offer and move quickly with your mortgage financing.

 KO: The biggest piece of advice I can give is that it is never too early to start working with a mortgage lender towards your goal of homeownership. Even if you are a year or two down the line it will be helpful to discuss your goals and establish a budget well in advance. I am advising all potential homebuyers currently to continue making all payments on time if they are able to do so;  this includes rent payments. In the near future, lenders may start to request a verification of rent showing that you have paid on time for the past 12 months. It is very important to have a paper trail so you will want to make rent payments electronically or in the form of a check but not with cash.

KC: At the end of the day they are still lending and check with your lender for any changes.   Every lender is different so if you are being told you can’t get a loan, try another local lender.   In this environment, I cannot stress enough how important it is to speak with a local lender.  Many online banks or call centers can guide you in the wrong direction.  Construction loans, FHA at 96.5% loan to value, VA at 100% loan to value, and USDA at 100% loan to value loans are all still available.  Feel free to reach out to the lenders we interviewed for more information.

 Kristin O’Neil

Senior Loan Officer

NMLS # 266528 

804.704.3339 (cell)

Jason Bradley Richardson

Mortgage Loan Originator

NMLS# 1088805

Office: 804-220-9251

Cell: 214-552-0661