Mortgage updates are happening almost daily – there are days we don’t want to look at our emails! Minimum credit scores, minimum down payments, more reserves, etc! What is going on? Covid-19 has made mortgage lending very difficult as lenders are facing challenges they have not seen before. Because of that borrowers are facing bigger hurdles. So how does this affect you as a homebuyer?
Lenders are tightening credit standards. Some changes affect all lenders, some just affect a few. Here are some of the changes I have seen posted online at different websites:
- Wells Fargo adjusted their minimum credit scores to 680 for all government loans (FHA, VA and USDA)
- US Bank wants 680 credit scores for FHA, VA, USDA loans and 640 for conventional
- Chase has said they want 20% down on conventional loans
- Many other lenders want 640-660 credit scores for FHA loans
There are still some lenders that will go to 620 for FHA loans and a few that may go to 580. However, many of those loans may require extra reserves. Reserves are equal to the monthly mortgage payment. You may also need to have your own down payment and not be able to use gift funds. Some are requiring that you can qualify on your own without a non-owner occupant unless you have a 680 score. Not all lenders have the same requirements, these are just some of the notifications we are seeing.
So what is causing this? Behind the scenes there are lots of things happening to mortgage companies – some of it very different from other times. The Fed entered the mortgage market and started purchasing mortgages – over $250 billion in the last couple weeks. That drove interest rates down but it also hurt the hedge fund that lenders had used to protect themselves against rate increases. When mortgage rates are very volatile, its difficult for lenders to use their normal hedging strategy. Then add to that many borrowers couldn’t close on their loans as they were laid off or had quarantines that affected their ability to close. That left lenders with loans that weren’t closing and margin calls.
So what should you do if you are trying to buy or refinance your mortgage? Talk to your lender. Ask them questions like what is your minimum credit score? When can I lock in my interest rate? What happens if my loan doesn’t close? Who is responsible for rate extension fees if my loan doesn’t close on time?
Make sure you shop around to get the answers you need. Lock in your rate if you are comfortable with the rate and the closing costs. Make sure your job is stable – if you are not working, we can’t close your loan. If you are self employed, you may be asked to document that covid-19 has not affected your business.
Interest rates are great- home prices are also very good! It could be a great time to buy!
Leslie Vanderwerf, NMLS ID#335509, AMEC Home Loans, An Equal Housing Lender, NMLS#150953 – Email – Website
