Here’s how COVID-19 changed the mortgage process
The COVID-19 outbreak has had a substantial impact on all parts of the financial system, including the real estate and mortgage industries.
The pandemic has simultaneously made it a more desirable and more difficult time for potential home buyers to buy a house. Current interest rates have created a surge in demand, while high unemployment rates and the slow housing market have created personal finance roadblocks for buyers.
Though some changes in financial protection and relief options for the housing market are likely to remain after the pandemic ends, some may just be temporary, like the CARES Act. President Joe Biden extended the moratorium on mortgage forbearance plans this past February, allowing for a prolonged period of mortgage relief for families struggling with payments or who may have missed payments.
Interest rates hit all-time lows
One of the most significant changes to the mortgage process is the change in interest rates. In March 2020, the Federal Reserve slashed interest rates to help stimulate the economy. Mortgage interest rates fell to their lowest levels ever, and the trend has continued into 2021, with rates still dipping below 3%.
These low rates can save borrowers ten of thousands — or even hundreds of thousands — of dollars over the course of a loan. And so it’s no surprise that demand for mortgages has increased, creating a seller’s market.
Another impact of the record-low interest rates has been a spike in the number of mortgage refinances, as homeowners make moves to reduce the cost of their loans and avoid financial hardship.
To see if you may be able to take advantage of today’s low rates for either a home purchase or refinance, visit Credible to see rates you’re eligible for.
MORTGAGE RATES NEAR RECORD LOW — HERE’S WHY IT’S A GOOD IDEA TO REFINANCE
COVID-19 forever changed mortgage tech
Even before the pandemic began, technology in the mortgage industry was advancing and changing the process. As a result of COVID-19 and social distancing rules, that progress has only quickened.
"The combination of increasingly secure technology and COVID-related restrictions has resulted in the desire for a more hands-off, contact-free application and closing process," said Anthony Sherman, CEO of digital mortgage marketplace Simplist. "And thus, the relaxation of many of the regulations that had prevented e-closings in many areas."
Given the direction the industry was moving before the pandemic, many of these changes are likely to remain after it ends.
Among other home mortgage technology is the ability to easily shop for mortgage loans online. To start shopping for mortgage rates, visit Credible and see prequalified offers from multiple lenders at once.
REFINANCING YOUR MORTGAGE DURING COVID-19? LOOK FOR THIS ONE LENDER FEATURE
It could be harder to qualify
Another impact of the COVID-19 economy is that borrowers may have a more difficult time qualifying for a mortgage.
"Borrowers should expect added scrutiny all along the process as lenders seek, in most cases, to make sure that borrowers are employed and that they qualify under the new stricter guidelines," Sherman said.
Mortgage lenders have become more critical of borrowers with below-average credit scores, and many have increased their minimum scores. Given the number of job losses throughout the pandemic, lenders are requiring more thorough proof of stable income, and may also require larger down payments.
You can use an online mortgage broker like Credible to see if you may be eligible for a home loan and to get prequalified.
HOW TO LOWER YOUR MORTGAGE PAYMENTS DURING COVID-19
It’s taking longer to close a mortgage
The acceleration of mortgage technology has simplified the process, but that doesn’t mean you should expect the closing process to be faster.
First, lenders have increased loan volume because of the high demand for mortgages and refinance loans. Additionally, given the increase in lending standards, there is more scrutiny paid to each loan. As a result, borrowers may experience a slower closing process. The process may be even more sluggish when working with a loan lender who hadn’t previously embraced technological advances.
"Borrowers may want to consider seeking out a digital lender," Sherman said. "Because they are already set up with a streamlined online process, many can still process your application from start to finish in less than 30 days."
HOW MORTGAGE REFINANCING HAS CHANGED AMID THE CORONAVIRUS PANDEMIC
The bottom line
COVID-19 has had a tremendous impact on all parts of the economy, including the mortgage lending process. Home buying demand has increased thanks to low interest rates, but the current housing market and the increased lending standards have made the process more difficult for some borrowers of VA loans, USDA loans, FHA loans and others.
Navigating the mortgage process doesn’t have to be overwhelming. Visit Credible to get in touch with experienced loan officers and get your mortgage questions answered, and you should also consider using an online loan calculator to determine potential monthly mortgage payments.
Have a finance-related question, but don't know who to ask? Email The Credible Money Expert at firstname.lastname@example.org and your question might be answered by Credible in our Money Expert column.