APPLYING FOR A MORTGAGE DURING THE PANDEMIC? 7 THINGS YOU SHOULD KNOW AND WHY IT MAY BE TOUGHER DURING 2020.

1.      You must have an excellent credit score, preferably 700. Why? Many financial ramifications of the pandemic are beyond our control. Lenders are scared too; they are publicly traded company and have to keep stockholders happy. Credit scores show that you have been paying bills on time and that is a key factor as you prove your borrowing power to a bank. Lenders frown up applicant who have incurred new debt or new loans during the application process. Pay off your credit card balances to the extent possible and DO NOT BUY A CAR between application and closing.

2.      You may be asked not only to prove you have a job but to show your employment contract. Why? In the pandemic economy, layoffs and furloughs can happen at any moment. Those situations are devastating to us but your lender also needs assurance that their loan will be repaid. Independent contractors and self-employed workers, consultants and those working in the gig economy may face more scrutiny because their paychecks often aren't as steady. So says Guy Cecala, CEO and publisher of Inside Mortgage Finance Publications, as quoted in US News and World Report.

3.      Lenders may want 20% or more as down payment. Why? You may have secure employment at the time of application and an exemplary history of paying your bills on time, but your lender is taking the risk that if you are laid off or furloughed unexpectedly due to the pandemic, you could default on payments, so they provide this cushion for themselves up front.

4.      You may need the house to appraise for what you paying or higher because banks prefer an 80/20 loan to value ratio. Why? Again, times are uncertain and so is our ability to keep up with expenses. According to Investopedia, if you default on your mortgage, your lender will need to sell the home to recoup the money they lent you. The appraisal protects the lender against lending more than they might be able to recover in this situation.

5.      You may have to plan for a longer closing period. Why? Banks and title companies may still not be operating at full capacity and many of their employees continue to work remotely. Workforces may be reduced in the last few months. All these factors could slow down the process. Additionally, Margaret Heidenry, writing for realtor.com, advises that lenders are buried under paperwork as refinancing applications skyrocketed due to the historically low mortgage interest rates. Also, social distancing orders have complicated the home closing process. Most attorneys are mailing documents, rather than delivering closing packages in person. Everything is still possible, but taking longer during the pandemic.

6.      You may not be able to get your dream house at a bargain price. In fact, you may be in a bidding war. Why? Jennifer Anderson of Forbes Real Estate Council reports that according to a recent survey of 1,000 homeowners who bought between January and May of 2020, 42% engaged in a bidding war. Who is coming out on top? In addition to submitting an offer above asking price, successful buyers are more likely to cover the some closing costs and/or an appraisal gap, tightening or eliminating mortgage contingencies, and paying for repairs. Lastly, because sellers may be concerned about being displaced from their homes during a pandemic, rent-backs (where sellers pay buyers “rent” to stay in the home past closing) are becoming more common.

7. Last but not least, if your family is helping you with the down payment, you want to get those funds into your account months before you make your bid and get a gift letter from your parents or relatives to prove to the bank that you do not have to repay those funds. If the bank sees it as a loan, they may consider it a second mortgage. If it is a loan, then do not accept those funds. The bank can review pay stubs and bank statements going back 6 months so if a big deposit landed in your account yesterday, it could put up a red flag. Better to get the money in the bank and let it sit there for a while or you may have to wait longer to close.

Want some expert advice navigating the new rules? Reach out to me by text and let Towne Realty Group help you find your way home in Essex County, Union County and Morris County, NJ We make referrals to around the world and would be happy to introduce you to an agent where ever you might move.

(Thanks to my friend Elizabeth Nover for her contribution to this article!)