COVID-19 and Mortgages: 3 Things Every Borrower Needs to Know

With all that has happened in the economy since COVID-19 forced so many Americans into lock-down in early 2020, it may seem baffling that home prices continue to skyrocket and bidding wars are driving home prices even higher. What are the links between COVID-19 and mortgages?

Many homeowners found themselves unemployed as a result of COVID-19 and applied for mortgage forbearance, effectively allowing them to “skip” or defer payments until they were able to get back on their feet. That was all well and good in the spring, when we all thought that two weeks on lock-down would be enough to flatten the curve. Months later, though, many institutions are now trying to figure out how to cut their losses without forcing evictions.

If you’re in the market to buy a new home, beware that the rules have changed and you may find yourself navigating a loan process that seems more complicated than it should be. Following are some tips for surviving the process and getting your mortgage loan application approved:

Get ready to do it all virtually. 

Fortunately, the mortgage loan application process has been trending in this direction for years, and HELOCs and similar credit applications are already fairly easy to complete online without having to visit your financial institution. Nevertheless, adoption rates have varied among local lending institutions, and many such institutions whose appeal to their local customer base has centered on “relationship banking” and personalized service have found themselves scrambling to adapt to the new virtual environment for loan origination, document processing and closing.

Rates are near historic lows - if you can get approved.

If you considered yourself creditworthy before COVID, then assume that your eligibility for a home loan, in the eyes of most lenders, has dropped at least slightly due to the pandemic. Even if your job has not been affected and your finances are as stable as ever, lenders aren’t counting on your financial picture to stay the same in the near future.

To be clear, rate cuts were occurring even before the pandemic and, as explained by Market Watch, the recent downhill slide in interest rates on new mortgages can be largely attributed to declining long-term bond yields.

With so much economic volatility since the spring, lenders are bracing themselves for further economic turmoil as a wider swath of the economy is expected to feel the effects of COVID-19 as time goes on, potentially leading to further layoffs.

More red tape than ever. 

If you provide proof of employment early in your loan application process, be prepared to have to provide updated documents closer to your closing date. Lenders are viewing most borrowers as higher-risk in the current COVID-19 environment and increasingly vulnerable to job loss, meaning that the pay stubs you provide today may not be from a job you still have 30 to 45 days from now. Delays may also become commonplace as some lenders implement new systems to take traditionally in-person interactions online for social-distancing purposes.

What lower loan rates mean to you as a home buyer:

If you’re in the market to buy a home, realize that rising home prices are largely the result of the steady decline in mortgage loan rates over the past couple of years. Before you reach out to any potential lenders, decide on your upper loan limit - the traditional rule of thumb is triple your household income - and use a mortgage calculator to determine what the range of monthly payments may be based on two or three different loan rates. Ideally, your monthly payment (including principal, interest, taxes and insurance, as well as private mortgage insurance for those putting less than 20 percent down) will not exceed 25 percent of your monthly take-home pay.

Once you know your numbers, commit to only looking at homes whose prices fall below these limits. By setting a realistic price point, knowing what rates are available to you and being patient when delays happen on the way to closing, you can expect to get the home you want at a price you can afford - in any circumstances.

Atlantic Home Mortgage is a leader in the mortgage lending space and will be happy to answer any questions you may have about navigating the mortgage loan application process during the pandemic. To learn more about our loan rates and how to get pre-approved, contact us.