One of the defining characteristics of the current pandemic is uncertainty. Industries of all kinds are being affected, people are losing their jobs, and the entire economic climate is tenuous. For the mortgage industry, that means a different type of uncertainty - a customer base with rapidly changing income and employment status.
To deal with this constantly developing problem, many lenders are tightening their standards for mortgage approval, particularly as it relates to proof of income and ability to repay. Of course, every lender is a bit different, and each company is making choices that best fit their mortgage products and customers. The most common changes to standards have to do with verifying employment (for traditional workers) and confirming that self-employed and business owning individuals still have operational companies.
These “overlays” may include additional employment verification (verbally or via email) on the day of closing, increased credit score requirements for certain types of loans (as well as certain types of income, such as income from rental properties), confirmation that small businesses are still open and generating revenue, change DTI maximums, and a host of other more stringent requirements to ensure that borrowers can repay their loans.
Some lenders are also reducing document age requirements from four months to two months, largely because so many people’s employment and income situations are changing rapidly.
All of this stems from managing risk. New information about the effects of COVID-19 is emerging every day, and with it, new rules for staying home, changes to what industries are deemed “essential,” and so on. Uncertainty with income means that lenders can’t easily issue mortgages with confidence, and thus, these tighter standards are intended to help mitigate that problem.
If you are in the middle of applying for a mortgage, contact your lender immediately to see how rules and requirements may have changed. If you’re just getting started, know that many lenders are still fully operational and you can still get a home loan, there just may be more requirements than you initially anticipated.
As unemployment continues to grow, the home loan industry is taking steps to contend with the crisis, both for their own sake, and to make sure that those seeking home loans can work with stable lenders.
Again, every lending institution has their own variations of these overlays, and others may not be making any changes at all. It’s in your best interest to contact your mortgage company directly to inquire about any new requirements, tightened standards, or any other changes you may face.
This is an ongoing, evolving process, and the best thing you can do is stay up to date on the unique details of your mortgage!
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