With mortgage credit availability falling to levels not seen since 2014, getting approved for a home loan has been difficult for many buyers during the pandemic, despite a very active mortgage market, according to a recent report.
Realtor.com reported home loans were hitting record highs, but they were mostly going to borrowers with exceptional credit histories and substantial down payments. The report found borrowers with credit qualifications just under that category were finding fewer lenders willing to approve their applications, creating an entire segment of borrowers who would have qualified for a home loan early in 2020 but were suddenly deemed too much of a risk after COVID hit.
The impact of the pandemic caused the mortgage market to tighten up and lenders to stop lending or put in COVID overlays, Guaranteed Rate Branch Manager Shant Banosian tells Boston Agent magazine. But in the last few months, as the economic recovery gains an increasingly solid foothold, lenders are starting to return to pre-pandemic practices.
“There are two things lenders like: When home prices go up, and unemployment goes down,” Banosian said. ”We are actually seeing real-time in 2021 mortgage credit availability becoming easier to get, when during the second half of 2020, it was much tighter.”
Then, for example, lenders were verifying income and employment status not only at the pre-approval and offer-acceptance phases of home sales, but at the end of loan-application process as well, Banosian said. COVID-related carnage led lenders to increase their requirements for reserves and down payments, too.
Many of these hurdles that bedeviled some homebuyers during the thick of the pandemic are now gone, Banosian said.
“It’s getting easier to get a mortgage,” he said. “Rates are still super, super low. A 30-year fixed mortgage in mid-April was in the highs 2s again, which disappeared for a while after being up in February, March and early April, and the last two weeks they’ve gone down. Borrowing power is greater now, your borrowing costs are cheaper, and that’s a great equalizer for buyers.”
Banosian said buyers need to be ready, given the pace of change in today’s homebuying environment.
“This is a super, fast-moving market,” Banosian said. “Being prepared, knowing your interest rate, getting your loan approved prior to making an offer — anything you can do to move, act or think quickly in this market is of the utmost importance, in my opinion.”