The COVID-19 pandemic has changed the financial sector in unprecedented fashion, and the mortgage industry has not been spared.
Since mortgages are the most important asset on lenders’ books, lenders take extra care in determining who to lend to, which makes borrowers more difficult. However, the pandemic has also made mortgages more attractive to borrowers as interest rates have fallen to new lows.
With such drastic changes, how can you successfully apply for a mortgage at the cheapest interest rates?
Read on for helpful tips on how to apply for a mortgage loan during the pandemic so you can successfully buy a home.
How has COVID-19 changed the mortgage application process?
The COVID-19 pandemic is having a significant impact on the mortgage industry.
This impact has had a direct impact on mortgages and the entire application process. Important changes are:
- Reviews are now mostly done online or following strict social distancing guidelines. Lenders and real estate agents are now integrating desktop, curb, or data-driven valuations to determine property values.
- Certain mortgage loans are no longer readily available. Unqualified mortgages and jumbo loans, which are popular with self-employed borrowers and other unpaid income earners, are not easy to come by.
- Lenders have raised their minimum loan values since the outbreak of the pandemic, with some even asking for higher down payments.
- Loan approvals now take longer and lenders are taking more time to assess borrowers’ suitability by carefully reviewing employment status and income.
- Mortgages now cost less. The Federal Reserve cut its base rate in 2020 and increased purchases of mortgage-backed securities to stimulate the economy and make it easier for borrowers to access mortgages. As of February 2021, a 15-year fixed-rate mortgage cost 2.21% after 2.97% in 2020.
Top Tips for Applying for Mortgage During the Coronavirus Pandemic
1. Check your credit report
The mortgage rates you attract depend on your credit rating.
Since bad credit can take up to a year to reverse, you need to check your credit report early enough to make sure it is accurate and cheap in order to qualify for the lowest possible monthly payment and mortgage interest. You’ll pay less in the long run and have more cash in your pocket for other expenses.
In these unprecedented times, these small savings can make all the difference.
2. Before you apply for a mortgage, improve your credit score
If your credit report is correct but your credit score is not as high as you’d like it to be, you should work on improving it before you apply for a mortgage.
Some of the things that you can do to get a higher credit score are:
- No opening or closing of checking accounts during the mortgage application
- Pay every single monthly bill or debt payment on time
- Reduce your credit card balance
Look for mortgage rates to make sure you are getting a good deal. For example, FHA loans require mortgage insurance, which increases your borrowing costs. If you’re a veteran or a service member, a VA loan can entitle you to zero monthly mortgage insurance premiums, lower interest rates, and a cap on the buyer’s closing costs.
Get at least three quotes from three different lenders or use a mortgage broker to help you compare multiple quotes.
3. Get pre-approval before submitting an offer
Especially if you are a first time buyer, don’t make the mistake of starting your home search before getting pre-approved.
Pre-approvals give buyers an idea of the property they can afford and directly determine their purchase budget.
Pre-approvals also give the buyer leverage and credibility with the seller. Sellers are likely to take offers from these buyers seriously as they demonstrate that the buyer is able to obtain financing for the purchase.
4th If possible, make a larger deposit
In these troubled economic times, offering a larger down payment for your mortgage is music to your lender’s ears. These down payments minimize the lender’s risk and make you a less risky investment.
If you have cash, try paying a 5% to 20% down payment to increase your chances of getting your mortgage approved.
5. Avoid late payments on firm commitments
If you are late on fixed monthly payments like rent, credit cards, and car payments, you may not be able to take out a mortgage.
If you are a first-time buyer without a comprehensive credit history, your rental payment history is a key indicator of whether you are a responsible homeowner and make timely mortgage payments.
Make sure you pay your rent on time at least a year or two before completing your mortgage application. You should also make monthly credit card, loan, or car payments on time and keep all of your debt balances as low as possible.
6th Avoid taking on new debt
Taking on new debt can have a negative impact on your debt-to-income ratio, a criterion that lenders use to assess your ability to pay the loan.
The Debt-Income Ratio (DTI) looks at your total income compared to the total amount you pay in monthly debt. The more debt you owe, the less you have available for mortgage payments, which limits the size of your mortgage.
Lenders also recommend following the 30/30/3 rule to avoid buying a home that you cannot afford. This formula provides the following:
- Have at least 30% of the property’s value in cash.
- Do not spend more than 30% of your gross annual income on mortgage payments.
- Do not buy a property for more than three times your gross annual income.
If you follow the 30/30/3 rule and have a cheap DTI, you shouldn’t need to get additional mortgage insurance, which will only make your home loan more expensive.
7th Be proactive with your lender
Make sure you have all of the paperwork your lender requires and answer your lender’s questions quickly to make your mortgage application easier. Have the following documents ready:
- Asset documentation
- Bank statements
- Credit history
- Pay slips
- Photo ID
- Rental history
- tax returns
- W-2 shape
It will take some time for the loan officer to review and review your records. Anything you can do to shorten the process will speed up your application.
Do you need to buy a home during COVID-19? Contact the Greater Alliance for assistance
If you need help understanding how to apply for a mortgage in Bergen or Passaic County during this unprecedented COVID-19 era, contact Greater Alliance online or call or visit today at 201-599-5500 Our website at make an appointment with one of our mortgage experts ..
We can help you get your home loan easier and ensure you get the best interest rates and repayment terms.