Six Ways COVID-19 Has Affected Home Loans
Submitted by People’s Bank, written by Jo Dallas
The coronavirus has affected almost every sector of our economy, including the real estate market. While much of the home buying process is already online, such as finding and viewing homes, the pandemic has also brought about some changes to the loan approval process. If you are wondering if now is the time to buy or refinance a home, here are some things to consider.
1. Mortgage rates are at historically low levels. I have experienced many ups and downs in the housing market over my 30 year career as a lender, and these are some of the lowest rates I have seen. What makes this market unique is that the lowest rates are associated with record demand and record stocks.
2. Online applications facilitate remote loan approval. As the lending process already became more streamlined, COVID-19 has accelerated the pace of change. You can now take all the necessary steps to apply for a loan online. We have implemented a new intuitive and user-friendly online application system at Banque Populaire that collects the information required for loan authorization and provides clear instructions on what needs to be submitted electronically, such as pay stubs. , income tax returns or other eligible documents.
3. The guidelines have tightened somewhat, but loans are available. Investors have adjusted some of their guidelines due to the increased risk induced by the pandemic. For example, the minimum credit score requirement has increased and lenders need to deepen the financial position of borrowers. Independent borrowers should be prepared to share more information about your business, if and how you’ve been affected by COVID-19, and if you have other sources of capital. All borrowers should be prepared for the approval process to take a little longer, but it won’t affect your rate once it’s locked in. Fortunately, we are starting to see some of the restrictions loosen as loan risks are better understood.
4. Low rates bring more purchasing power. Lower rates allow borrowers to buy a more expensive home or to withdraw more money from an existing home for a renovation or other home improvement project. This graph gives you an idea of the correlation between interest rates and purchasing power. It is also important to consider the length of the loan. Although long-term loans have higher interest rates, they offer lower monthly payments, which provides more flexibility in cash flow. A shorter term loan offers a lower rate, but a higher monthly payment. It’s amazing how much putting a little more on your principal balance each month can save you money over the life of the loan.
5. It’s still a sellers’ market. The lack of available inventory for affordable housing is still a problem now, despite COVID-19. Because the demand is so high, buyers must be prepared to engage. This means being pre-approved for a loan before you start looking for a home.
6. The best time to refinance is unique for each buyer. I am often asked what the break-even point is for clients looking to refinance a loan. The truth is, the answer is different for everyone. Are you looking for debt consolidation? Do you want to lower your monthly payment? Do you need money to make improvements to your home? How long do you plan to own the house? A lender can help you determine if it is the right time to refinance your loan.
All signs point to rates remain low, potentially until next year. However, the market is changing rapidly. If you are considering a new home purchase or refinancing, I recommend that you meet with a loan officer to discuss your unique situation and get your questions answered. While COVID-19 has pushed many of our interactions online, our door is still open, as before. Whether you want to schedule an in-person meeting, a phone call, or a video call, we’ll be happy to meet with you in the way that’s most convenient for you.
Jo dallas has been serving clients in the real estate industry for over 30 years. She is residential production manager for the People’s Bank Home Loans Division and manages the operations of the People’s Bank mortgage team. Contact Jo at [email protected] or (360) 650-5369.