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Lenders are tightening guidelines whether you are looking to purchase a home or refinancing. In this post, we will see why home buyers and homeowners are facing challenges in securing the low-interest rates at this time.
Big Banks Making Internal Guideline Changes
Many sources have confirmed that some of the big banks have changed their lending guidelines on new home purchases and refinancing.
The update says that these banks have updated their qualification to at least 20 % down payment and a minimum credit score of 700.
This might not seem like a massive change for some potential borrowers. However, it could be a change that starts to trickle down to other banks as well.
Big banks aren’t always the most aggressive in regards to underwriting guidelines. They usually have better interest rates than some of the smaller banks out there. However, as long as their guidelines go, they are generally quite conservative.
These changes make the potential buyers with credit challenges to unveil all the possible options, including the minimum down payment option.
Change in Other Guidelines
If you are looking to purchase or refinance your home mortgage, these changes are the things that you want to know about as it is going to help you plan accordingly going forward in these difficult times.
One of the most significant changes to the guidelines is done for Verification of Employment (VOE).
It used to be that the lender would require a VOE either by telephone or in writing within ten days of closing on a loan.
Those guidelines have recently changed now to reflect that a lender wants a verbal VOE on the day that the documents go out, and also at the day when the loan funds.
There could be a possibility that there won’t be anyone to do the verbal Verification of Employment or they may take time to respond or reply.
This change in guideline could become a huge challenge for closing the loan on time and, at the worst, burst the loan due to failed Verification of employment for the borrowers and homeowners.
The Verification of employment guideline change is going to create a problem for many people, especially if you are in an industry that is furloughing workers or in an industry where job security could be a potential issue.
Documentation Guidelines
Generally, before the current COVID-19 situation, any documents requested by the lender could be up to 120 days old.
For most lenders, the underwriting guideline says 60 days, however, the unwritten rule for most lender says that they want to see the documents within the last thirty days.
So, all the documents have to be updated to the last bank statement. The big change in the guideline is for the self-employed borrowers.
It is tough at the moment for the self-employed borrowers because you got to prove that they haven’t been affected by COVID-19. Lenders would want to see that the self-employed borrower is still in business.
Borrowers might have to vary their income by showing deposits, or contracts if you are into contract business. Failing to prove that, you might face challenges with regards to lending.
Appraisals
If you are refinancing or buying a new property, an appraisal is one of the things that is associated with the loan.
The appraisal guidelines have loosened a little bit. Most purchases require an exterior-only appraisal. However, if you are doing a cash-out refinance, there is still a full appraisal required.
Conclusion
Even after seeing the mortgage interest rates at their near-record low, the home buyers and homeowners are facing challenges to secure them due to constant changes in rules and guidelines.
If you are looking to buy a home or refinance your current mortgage, please get in touch with your loan officer to get updated information.
Keep your documents up to date with your lender because of the market volatility and constant changes that the mortgage industry is experiencing at this time.
