Wow, what a journey this has been for all of us. As realtors we have been considered an “Essential business” throughout the stay at home orders. We started with being able to show homes in March however a few weeks into the process the attorney general stopped that. We have been able to finish out existing transactions but rarely attend the inspections, walk throughs or closings. The goal is to have only the essential parties together and avoid more contact. These last 2-3 weeks have been tough for the real estate realm we have been unable to help our clients that need to list or buy but do understand we need to be safe and play our part. We have been very cautious when showing homes including using gloves on surfaces we need to touch, Clorox wiping anything we touch and using shoe protectors. We also are respecting the 6 ft. distancing at showings and never show homes while sick or with sick clients. That being said, we are eager to get back to helping our clients.
Being able to fully resume our real estate transactions is essential to helping our economy not traverse further downward. Here are a few examples of circumstances sellers and buyers are facing. A seller listed their home vacant because they moved out a month ago and now have had significantly fewer showings due to the stay at home orders and continue to have to pay a mortgage. This could lead to issues with an inability to pay their mortgage, needing to consider forbearance or other options. Or a seller, who lists their home, finds a buyer but that buyer needs to sell their home. The contingent home sits on the market for an extended time because of the stay at home orders. There are also situations where a buyer is buying new construction and needs to sell to be able to buy. You can see the domino affect.
The good news is, starting 4/27 we will be able to start showing homes again. Of course with great caution. We are not allowed to do open houses at this point. We have to remember sellers and buyers who are in this market are motivated and willing to move forward if given the chance. We are happy to have the opportunity for the market to be able to show us what the new normal is.
Here are a few changes that have been instituted during the shut down that are affecting our real estate market. The changes are coming daily, specifically in the lending of mortgages. When you purchase a home through a mortgage broker or bank the loan or note is sold on the secondary market to big buyers. The secondary market buys your loan and makes money on the servicing of the loan over time. However, lenders are understandably antsy or concerned about a percentage of the new loans being originated because they know some will be in default in the near future or not be able to pay the loan as planned. Lenders also worry too many people may refinance which hurts them as well. So this is why they are being more conservative. It’s similar to how they reacted in 2008-2009 during the recession. The good news is, with the exception of some tightening of guidelines loans have been closing in a normal time frame.
Credit score requirements are tightening– The loans that have been most affected by average credit score changes are FHA and VA loans. FHA and VA loans now require between a 640-680 credit score in most cases. These required scores can change day to day. To give you perspective, you used to be able to get a FHA or VA loan with 500-580 credit scores.
Reserves required for loan qualification-When you apply for a mortgage you need to consider your savings as a homeowner. Currently jumbo loans require 3 months reserves to cover your mortgage. Personally, I think you should have at least 3 months reserves including your monthly bills and mortgage when owning a home. I think this stay at home order reminded us all how important our financial stability and reserves are. We may soon see this requirement of 3 months reserves be necessary for non-jumbo conventional loans, FHA and VA. If you are planning to buy in the near future this may be smart to plan for.
Where are rates today?- Depending on the lender and your qualifications the rates are between 3-4%.
What changes have we seen for jumbo loans?- If a borrower wants to purchase a home and obtain a loan amount around $575,000 they are using a Jumbo loan. Jumbo loan limits vary county to county but the Denver metro area limit is $575,000. Jumbo loans used to require 10-15% down but now they are requiring 20% down payments and good credit (700 min) and 3 months reserves. There are no cash out refinances right now or jumbo investment property loans.
Advice from lenders-
-If you were pre-approved before the COVID shut down make sure to contact you lender and confirm the program you were using is still available.
-Payoff debt, make sure you have reserves.
-If you are struggling you may want to consider using equity from your home to help you. This could include refinancing or selling.
-Don’t let fear control your actions.
-If you are getting a loan during the loan process the underwriters are checking your employment status multiple times. Both at 7 days prior to closing and within 24 hours of closing so make sure you are and will remain gainfully employed.
-With showings starting back up and a gauntlet of listings coming on, this may be a great opportunity for buyers to have more leverage while some buyers still sit on the sidelines.
-Remember VA loans require no down payment although you can choose to put one down. FHA loans require 3.5% down. Conventional loans have down payments as low as 3% down but if you are buying a investment property or a home that requires a jumbo loan (loan amt. bigger than 575k) the down payment requirements are higher….like 20-25%.
Changes for self employed borrowers-
The lenders are requiring profit and loss statements for 2019 and year to date.
Options for homeowners who are struggling with paying their mortgage-
Over these last few months many people have been financially impacted by job losses, slow downs in business, stock losses and so much more. If you are considering options to assist you with your loss of income and inability to pay bills please feel free to reach out to me or your lender I would love to be a resource. I went through the recession in 2008 and my own family experiencing job loss. I feel we are in a better position to pull out of this current financial struggle than we saw during the recession but it still is a reality for many. Here are some options banks and the government are offering. Please do your research this is just a highlight of them and the biggest advice is know what your bank will actually do if you file for one of these options before doing so. THEY ARE ALL DIFFERENT!
Forbearance– Some banks are allowing you to not pay your mortgage for up to 90 days. However, you will need to pay it back and many are charging the full 3 months of mortgage payments on day 90. This seems brutal to expect borrowers who can’t pay todays mortgage to pay 3 mortgage payments 90 days later. Some banks may allow you to pay back the 90 days over a period of time or add it to the end of the mortgage so you pay it when you sell. However the last two options are rare. Please check before you file for forbearance and get it in writing what your bank is requiring for re-payment. We also do not know if having a forbearance in your mortgage history will affect your ability to get a loan in the future once its is paid back. Some banks are saying if you do choose forbearance it should not negatively affect your credit as a late payment but this is not proving to be so in all cases. Forbearance is not forgiveness.
Are HELOCS and Refinancing still happening?-
Yes, home equity lines of credit do still exist but have tightened up guidelines. You used to be able to borrow up to 90 or 95% of your homes value. Now you can borrow less depending on the bank and situation but it is closer to 80%. Refinances are still happening but keep in mind you still have to be gainfully employed to refinance. They need to know you can pay back your new loan!
If you have lending questions I would love to put you in touch with some wonderful lenders who can assist you during these times. Thanks to the following contributors…Michelle Oddo, Leader One Financial, Aaron Brenner, Movement Mortgage and Jocelyn Javernick, LimeTree Lending.