The world came to a halt as the coronavirus pandemic affected every country across the globe. This has led to many people losing their jobs, and no industry, including the mortgage industry, could escape the subsequent economic downturn. As a result of this, lenders have become stricter on home loan approvals.
Here’s an in-depth guide by Altrua Financial on the reasons why it’s harder to get mortgage approval from a mortgage broker during this pandemic.
Lenders Consider Mortgages To Be Too Risky
This global pandemic has brought about a shrink in the global economy. And with this shrink, is the growing uncertainty among lenders on the creditworthiness of their potential borrowers. The implementation of such measures by these companies was because of the unprecedented market conditions that have led to financial strain for most borrowers and the entire economy. Therefore, the lenders to safeguard themselves from financial loss have opted to implement strict underwriting.
And with many people losing their jobs due to the economy shrinking, lenders are concerned that they might approve a loan and the borrower suddenly loses their job. As a result, they won’t finance their mortgage payment, which is a loss to the lender. Fortunately, there’s a glimmer of hope that this might change soon as the lenders assess how the economy is doing at the start of next year.
Which Consumers Are Most Affected By This Strict Mortgage Approval Requirements?
Even as the interest rates lowered to record levels, it’s still tough for many borrowers to get mortgage requests approved. But some borrowers have been greater affected than others and these include;
A greater number of people nowadays self-employed or independent contractors, mostly due to the rise in the gig economy. But with the economic shrink experienced this year, lenders are wary of these self-employed mortgage applicants because they usually don’t have a steady income. And with the many of the mortgage industry requirements quite rigid, the coronavirus pandemic has only made it worse for self-employed individuals to secure mortgage loans.
Applicants With Low Credit Scores
Lenders to protect themselves from financial loss have gone ahead and increased the minimum credit score required to secure a loan. Due to this increase, many people will be locked out from securing loans from the mortgage brokers who see greater restrictions necessary.
Applicants With Low Down Payments
Before the pandemic, the initial down payment you were required to put down wasn’t more than 20%. However, this has quickly changed with lenders only granting mortgage loans to homebuyers who’re ready to pay a greater down payment. And with many people’s liquidity affected due to the economic shrink, fewer borrowers end up successfully getting the mortgage loans.
Applicants Who Want Jumbo Mortgages
The jumbo loan or mortgage is usually set at a greater value to the minimum limit that the Federal Housing Finance Agency has put. These loans have limits that differ depending on the location, but they’re often valued at $510,400. And with the interest rates for these loans on the rise, lenders are more cautious in giving out these loans.
The global economy has dramatically been affected by the pandemic, which has impacted the ease of getting approved for a mortgage. This in-depth guide has elaborated why this is the case and the most affected borrowers.