Navigating a COVID-19-Era Mortgage Transaction Successfully
A few weeks back, I wrote an article regarding the need for homebuyers to adopt the right mindset and being ready to "go to work" when approaching, preparing, and entering the home buying process ...
Over the last few weeks that advice has become even more important and relevant. The COVID-19 virus and resulting pandemic produced even more challenges for potential home buyers and those now actively seeking homes.
Even with responses coming from Government Officials, financial experts, the U.S. Treasury Department, as well as the Private Financial Sector ... the result of more regulations, more guidelines, more economic stimulus, more financial/credit relief for mortgage-holders (homeowners), have created a time of uncertainty for those who:
- Service mortgage loans that are insured by FHA, VA, and the USDA (a/k/a Government Loans).
Along with this current uncertainty has come instability. Higher costs and higher interest rates have also occurred (although rates can and have fluctuated, as rates are dependant on financial markets and current events/news delivered throughout any given day).
It's a fact: Mortgage Lenders are constantly looking for ways to eliminate as much of their risk as possible. Lenders have been accomplishing that recently by limiting the flow of mortgage money. But again, this action is taking place during a time when their liquidity has been greatly tested.
But American homeowners have been "tested" too. They've been laid-off and furloughed in record numbers. Work-hours and employment have both been cut back drastically for many Americans. Those working in service-providing industries have been especially hard-hit.
It's for these and other deeply-intertwined reasons that Mortgage Lenders have currently increased credit score minimums to 640 on FHA Loans. But please note: Credit score minimums can possibly be even higher in some FHA lending scenarios.
Many hopeful home buyers recently calling me for mortgage information have noted that they've heard and seen some Mortgage Lenders advertising interest rates for Borrowers with scores as low as 620.
That is why it's important to note here: Typically those lower minimum scores are attached to such high closing costs (Points), that low-down-payment borrowers simply can't meet the financial burden/costs of closing on an FHA or VA Loan (or choose not to) at this time.
In other words: Potential home buyers are on the sidelines of buying and choosing to wait these higher costs out for the time being.
In the meantime and as a direct result, demand for these loans has dropped. The demand will remain low until the Government Loans become more reasonable and more affordable once again.
Methods of negotiation for current transactions are evolving as a result of the above-mentioned changes.
I am presently seeing Real Estate Contracts come in that include "Seller-Paid Closing Costs" again.
And as a result, agents on both sides of the transaction must be prepared.
For Realtors representing Sellers: It's wise to prepare your clients for offers that might include requests for Sellers to pay closing costs/point (up to 6% on FHA Loans is allowed).
For Realtors representing Buyers: Mortgage Lenders representing your Buyers, myself included, may suggest that Buyers ask for Seller-paid Closing Costs on Pre-Qualification or Pre-Approval Letters.
Seller-paid Closing Cost assistance may be the best (or only) way to make a Buyer's financing work and for them to successfully complete their transaction. It may be the only route to a successfully completed sale. Only a thorough and complete analysis by a Mortgage Lender via the pre-qualification/pre-approval process can determine this for sure.
Now is the time to educate yourself regarding current lending trends. Get and remain flexible ... both if a Buyer and Seller (or Realtor representative).
Why do I say current?
Trends form, changes occur, and fluctuations in interest rates take place all the time. It's one thing you can always count on regarding mortgages.
But as quickly as responses and changes arose to address the challenges presented by COVID-19 and rising unemployment, I'm already seeing an "easing" and changes ... although not presently in writing, as of this writing ... may already be taking shape.
Stay tuned. More changes will certainly lie ahead ...
But this just highlights why it's so important to get informed, stay educated, and exercise good common sense, good communication, and cooperation. It's paramount to facilitating transactions.
Everyone taking part in a transaction must participate in this mindset and do their part to help find solutions that will assist in successfully closing their clients' deals.
* Are you dreaming of buying or refinancing a home or Investment Property in New Lenox - Will County - Chicago - Chicagoland - IL/WI?
Contact me today! I'll put my 40 years of mortgage experience and expertise to work on your behalf.
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