In addition to disrupting the economy, the Coronavirus has also influenced the housing market. Around 4 million homeowners have already requested mortgage forbearance through the CARES Act forbearance program as of last month.
Lenders are responding to the economic uncertainty by tightening credit requirements and making borrowers go through more hoops in an effort to avoid future missed payments and loan defaults.
Right now, it’s still possible to get a mortgage, but for many borrowers the process will be more challenging. In response to the Coronavirus, lenders are tightening requirements for borrowing. Remember: for more tips on how to improve the quality of your life, visit www.credithealing.org.
Stricter Credit Score Requirements
Before the Coronavirus hit, a credit score of 580 was considered good enough by most lenders. Many lenders now require a credit score of at least 620, which falls within the “fair” range for most major credit scoring models. Some lenders are going even higher. For example, Chase recently raised the minimum to 700 points.
If you plan to buy a home soon, you should start working toward your credit goals now. Even if your credit score is already very good, reaching your credit goals will help you qualify for lower interest rates and better loan terms.
Increased Scrutiny of Borrower Income
You may need to prove that your income is sufficient to afford a mortgage even more than your credit score. Lenders may still lend to borrowers with fair or average credit scores if they believe their income is steady and reliable.
In the days before Coronavirus, some lenders may have required only last year’s tax return as proof of income; those days are over. Today, proof of employment and income must be provided. It is possible that your employer will need to verify your employment status several times during the loan application process. Lenders are worried that a potential borrower could be laid off at any time and may need to verify employment up to 10 times.
Larger Down Payments
Many borrowers could qualify for a mortgage loan with a down payment as low as 3% of the sale price in the past. Now, they may need to put down much more. Lenders are raising their down payment requirements. In fact, Chase raised its down payment requirement from 10% to 20%.
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