Are you planning to take out a loan to buy a house during the pandemic? Here is a rundown of things you need to know about how current global circumstances have affected mortgages:
Mortgage rates are lower, but requirements are tighter
The good news is that mortgage interest rates are at nearly historic lows due to the Federal Reserve’s efforts to protect the economy from the impacts of the COVID-19 pandemic. Now is a great time to lock in a low rate for a 15-year or 30-year loan.
On the other hand, lenders are implementing stricter approval criteria, such as larger down payment or higher credit score requirements. On their part, lenders are tightening up on loan approvals in order to prevent loan defaults, especially in light of the general economic uncertainty resulting from the pandemic.
Applying for a mortgage is also more complicated under current conditions. While a loan application can be done online, other steps like getting home appraisals and document signing have become trickier to navigate because of social distancing measures.
Be prepared to prove your ability to pay
If you are applying for a mortgage, you must be sure of your job security for the foreseeable future. In this time of widespread furloughs and retrenchment, lenders are taking extra effort to verify their borrowers’ employment status.
Your lender might also request additional personal and financial records to ensure your viability as a borrower. Just be sure to be ready with a file that contains all of your relevant personal and financial credentials.
You can get a mortgage forbearance extension
Forbearance is a form of relief offered to borrowers who are struggling with their mortgage payments. The Coronavirus Aid, Relief, and Economic Security (CARES) Act included provisions for deferred payments for federally backed loans by up to 180 days.
If you requested this relief for your home loan obligations, be aware that the initial forbearance period is about to expire at the end of October. On the bright side, a second 180-day extension is available, but this extension is not automatic. You’ll need to contact your lender to request the extension.
Private lenders have varying pandemic-related forbearance and mortgage relief measures. Make sure to inquire about solutions that best apply to your situation.
Now might be a good time to refinance
With interest rates favoring borrowers, refinancing may be a good idea. But be clear with your objective before approaching your lender. Do you want to lock in a lower monthly payment or shorten the duration of the loan? Do you want to switch from an adjustable rate mortgage to a fixed-rate loan, or vice versa?
You should also think twice about refinancing if you expect to move again soon. Refinancing might not be worth the trouble if you’ll be leaving the house in two or so years. The costs of closing your sale could cancel out any savings you gain from a refinanced mortgage.
It’s always best to compare lenders
Whether you are applying for a home loan for the first time or seeking to refinance a mortgage, try to secure a loan estimate from multiple reputable lenders in your area. This will give you the chance to compare and choose the mortgage amount and payment terms that will help you best.
For expert assistance on securing mortgages to buy homes for sale in Pennington, Ewing, and Lawrence, NJ, contact David DePaola & Company Real Estate. Call 609.883.4161 or email david(at)depaola(dotted)com to start a conversation with our local real estate specialists.