Getting a Loan in the Age of Coronavirus

March 24, 2020

Those of us who pay attention to mortgage markets, interest rates, and related issues get a lot of speculation lately about how things are going. Buying a home is more complicated in the era of the coronavirus, lockdowns, and COVID-19. But what are industry people saying about mortgage loans right now?

The fact is, there is a lot of speculation. But some truths are emerging from that. Many people in the industry are struggling to deal with market volatility, wildly changing interest rates, a glut of applications, and more. 

And some of these people see a kind of writing on the wall, so to speak, that could be the new normal until the great unknowns about the future of the economy are better explored.
What is that writing on the wall?

There are a lot of unknowns about coronavirus and the economy. More than three million people have applied for unemployment in this crisis, and the effects of that on the economy in general is hard to see at the moment.

But what’s becoming clear is that going forward, in order to qualify for a loan that is reasonably priced and has a more borrower-friendly interest rate borrowers are going to have to be more careful about the preparation stages of the home loan, refinance loan, reverse mortgage, rehab loan, etc.

Mortgage loan pricing is dependent in part on the borrower’s financial qualifications. When things were economically stable, the borrower who applied with a lower FICO score, a higher debt-to-income ratio, or other issues might be offered a higher interest rate and adjusted costs than a borrower with outstanding FICO scores and loan repayment history might get.

But now, a borrower who applies for a mortgage loan who doesn’t have good FICO scores, or has a repayment history without 12 months or more of on-time payments on ALL financial obligations?

These borrowers may be offered (depending on a variety of circumstances, remember that we are speculating here on the near-term future of the mortgage market) prices much worse than before. Your loan may not be as affordable as the loan offered to someone who meets the lender’s FICO score and other financial qualification standards.

What does this mean?

It means that borrowers should expect to work harder on raising FICO scores and establishing a stronger loan repayment history. You should be dedicated to starting earlier, being more dedicated to raising your credit scores and improving your credit report. Don’t expect to go into the loan process without being fully prepared. Those who fail to check credit reports, those who don’t work on their credit at least a year ahead of the application may find credit harder to come by until the dust settles on the current economic crisis.

Home loans ARE possible even now. But the preparation and saving phase of your loan are more important than ever and it pays to start early and give yourself as much time as needed to improve your credit for best results when you do apply for the mortgage.

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