5 Tips for Getting a Home Loan During the Pandemic
You’ve been holed up for weeks, barely seeing other people, avoiding the places you’d usually visit. But at some point, life has to go on, and for you that may mean buying a house.
If your finances are in order and the timing is right for you on a personal level, today’s historically low interest rates can make this a great time to take out a home loan.
With home tours moving online and agents meeting with buyers via Zoom, things are changing in the world of real estate. Banks and other lenders are adapting, too. Here are a few tips for taking out a home loan in these unusual times.
Table of Contents:
1. Make sure you are financially prepared
You’ll need steady income and your credit report must be solid to get a loan today.
Unemployment claims have risen to staggering rates during the pandemic and its resulting economic disruption. As a result, lenders are tightening their standards. They have raised their credit score requirements and increased the required down payments. Income levels and debt-to-income ratios that looked good enough before the pandemic may be risky today.
The overall availability of mortgage credit has decreased substantially since the crisis began, and certain types of loans may not be available. Recent legislation has given many borrowers the ability to delay payments, a relief to mortgage holders but a headache for lending institutions.
If you’re considered a risky borrower, be prepared to pay more—and brace yourself for the possibility that you won’t be able to get a loan at all until conditions improve. If lenders are hesitating to make the loan, be sure to ask yourself whether you need to be more cautious, too. Do they misunderstand your situation, or would you be better off delaying this purchase?
Expect your lender to require more documentation and verification than usual, too. Some institutions are checking on the status of employment multiple times before closing, and may require you to sign a document asserting that you have no reason to believe your income will decrease or your job will be lost in the coming months.
In this article, we’ll discuss some ideas for making a plan and saving enough for the down payment to make that dream an eventual reality. Let’s get started.
2. Shop around
While they’ve all felt the effects of the pandemic, some lenders have been hit harder than others, and they may be dealing with different challenges.
Types of lenders include banks, credit unions, thrift institutions, and mortgage companies. Get quotes from a number of lenders and compare the standards you’ll need to meet to qualify for the best rates.
The specific interest rate for the loan you need can vary significantly, and even a difference of less than one percent can affect the total amount you pay back by thousands of dollars. Lenders also vary in closing costs, how many points you can pay up front to lower your rate further, how long you can lock in a quoted rate, and whether you can take advantage of rates that fall during a grace period.
Comparing your options is always a good approach, but during the pandemic you may want to cast your net even wider to find the best balance of your ability to qualify, interest rates, and fees.
Customer service is a factor, too, although one that matters more in the short run than the long run. Is the institution itself? Are they short-staffed? Do they have strong and smooth processes in place for conducting most of their business online or remotely?
In addition to banks and credit unions, don’t forget to check out some online lenders. They’ve been around for a while now, and they didn’t have to change their procedures as much when office buildings closed down. They may be well-positioned to compete in the current economy. While there are small online lenders, 96% of electronic mortgage closings in the US have been through Quicken Loans, which was named Money’s Best Overall Mortgage Company in 2020.
3. Expect delays
For every step of the home buying process during the virus crisis, you’ll need some patience. Every business has been disrupted by the pandemic, and financial institutions are no exception.
Your lender may be working from home, potentially resulting in reduced efficiency since she may not have access to all the tools she’s used to.
Other businesses and organizations your lender may turn to in the loan application process—credit bureaus and even your own employer—may experience delays as well.
And while regular work may be more cumbersome than usual for lenders, the demand for new loans has been high. Not only are people like you looking to buy, but many homeowners are also refinancing their higher-interest mortgages.
Add to that the large number of borrowers who will have trouble making payments and need to work with their lenders to make a plan, and you have a heavy workload.
While it’s generally a good idea to get pre-approved before you shop for a property, it’s an especially important step now, particularly in markets with low inventory. Once you’ve completed that process, you’ll be ready to jump when you find the right home, without waiting for the financing to be approved.
Credit scores are the most significant driving factor in deciding what mortgage loan you will be eligible for and what interest rate you will qualify at. It’s crucial that you make sure your credit score is as high as possible before applying for a mortgage loan or any loan for that matter; otherwise, you will be paying for it for many years to come.
4. Take safety precautions
Your health should be a top concern, so work with your lender to minimize person-to-person contact. Most institutions should be able to conduct the majority of their business by phone or email, and many individuals may be willing to meet with you via video chat.
Increasingly available document signing tools, such as DocuSign, provide easy and legally appropriate ways to complete paperwork.
Even so, many mortgage lenders continue to require you to initial and sign a hard copy of your agreement. If your lender needs to conduct the closing in person, suggest a compromise. Can they meet you at your home and handle the closing on your front porch, maintaining social distance? Or can you meet them in their parking lot and handle the signing from your car?
In either case, bring your own pens. If possible, print the documents yourself rather than using the copy they present. Don’t forget a clipboard, hard cover book, or something else to write on. Wear your mask, use hand sanitizer, and of course wash your hands before you go and when you get home.
It’s ok to insist that the people you’re working with take similar precautions, or to ask what they’re doing to keep you safe.
5. Be flexible
Lenders are people, too. They want to do their jobs well, and they want to keep themselves and their families healthy. They should provide good service to you by making accommodations and adjustments.
For your part, a little patience goes a long way. We love to get great service, but it’s not business as usual right now, and that means everyone is vulnerable to mistakes and frustrations. Expect respect at all times, but forgive small bumps in the road. And if your lending agent does a great job, they’ll certainly appreciate a good review.
One of the most important responsibilities for a new homeowner is to make sure your home is properly insured. Unfortunately, this can be complicated. If only it were simple! When you’re considering homeowners insurance, you want to get the right coverage from the ideal provider and at the right price.
The status quo is nowhere to be seen right now, but the economy limps along, and today’s challenges don’t have to stop you from moving forward on a home purchase. If you can find the right home, and your own finances are in order, it is still possible to secure the loan you need to make it happen.
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