Trying to Refinance? May the Odds Be Ever in Your Favor.

Written by Jaymi Naciri Posted On Wednesday, 08 April 2020 05:00

We’ve been hearing for weeks about record-low mortgage interest rates now that the coronavirus has sent us all home and sent the economy reeling. Not surprisingly, those rates have spurred a refinancing boom. But many people who are rushing to refi are finding out it’s not as easy as they thought. 

Here’s what you need to know if you’re looking to lower your rate right now.

Rates may be higher than you thought

That 3.5% rate you saw last week might be up over 4% now. No, the coronavirus crisis isn’t over, and the Fed hasn’t raised the benchmark rate. So what’s going on here?

“A big reason may be a resurgence in new applications for mortgages and especially refinances,” said The Mortgage Reports. “Investors hate refinances, especially if they’re for mortgages that are recent. So the last thing they want is to replace lost mortgages with ones at an even lower rate. And, understandably, they shy away from (mortgage-backed securities) MBSs. But supply and demand mean that inevitably pushes up mortgage rates.

So the Fed is having to resist the market forces that arise when investors vote so decisively with their feet. We still think it likely that it will get its way in the end and push mortgage rates lower. But don’t expect a smooth ride.”

But they also may dip back down

When they do, call your loan professional. Quickly. And hope you make it through to the end. By some accounts, it’s like the Hunger Games out there. 

All lending institutions are not equal 

If you’re working with a mortgage broker, you’ll have access to a number of refinancing options and programs. If you’re working with just one lender, you only have access to their programs. It behooves you to get quotes from more than one person.

It may be harder to get approved—and stay that way 

The credit score that was good enough to qualify last year—or even last month—may not be good enough anymore. “That’s because the COVID-19 pandemic has forced lenders’ hands when it comes to FICO score minimums,” said Forbes. “As more and more Americans lose their jobs or see reduced wages because of the virus, the risk of foreclosure goes up. Investors who buy mortgage loans will lose out when that happens—and taking on more risk by lending to lower-credit borrowers? That’s just not something investors (or the lenders who sell to them) are interested in.”

That FHA minimum of 580 that many first-time buyers with sub-par credit used to qualify—it’s probably going to be awhile before that type of score is acceptable again. “Lenders set their own credit score requirements based on how much risk they’re willing to take on,” they said. One lender told a borrower the new minimum for FHA was 680.

“A look at rate sheets from lenders across the country reveals a similar theme. Credit score requirements are either much higher than the official FHA minimum (one lender’s floor was 740), or tiered interest rates make the loans virtually unaffordable for lower-credit borrowers (another lender added 15% for scores between 600 and 619). The result is a mortgage market that essentially shuts out buyers (and existing homeowners) who don’t have sterling credit.”

Your appraisal may come via an algorithm

Increasingly, appraisers are using computer algorithms instead of an-person inspections to determine the value of a home. “That’s partly because Freddie Mac and Fannie Mae, the government-backed mortgage giants, recently directed mortgage lenders to reduce the need for appraisers to inspect the interior of a home for eligible mortgages,” said Money. “The caveat? For non-conforming mortgages, such as FHA loans, an in-home appraisal is still required.”

Your inspection may be virtual

In many areas, this is the new normal. “The Erie Building Division has begun offering a virtual option so homeowners can have their projects inspected without staff members coming entering homes during the novel coronavirus pandemic,” said Colorado Hometown Weekly. “Erie staff is still conducting inspections on new home construction and commercial construction.”

Money adds that a “number of home inspectors are now using live video chatting apps like FaceTime or Zoom to let home buyers tag along remotely.”

There may be other barriers to closing

“Closing on a real estate transaction is hard enough without the extra obstacles erected by social distancing and lockdowns. So some are trying to dismantle the biggest barrier,” said The Mortgage Reports. “Legislators are currently working on a law that could further facilitate remote, electronic signing of closing documents. That’s generally already legal under the Electronic Signatures in Global and National Commerce Act (E-Sign) and various state laws. But a new bipartisan bill is intended to make it easier and more commonplace. And Fannie Mae, Freddie Mac and probably others are being less strict about some aspects of verification. So, perhaps, your employer, working from home without access to paper files, may be able to certify your employment by email rather than provide documentary evidence.”

However, that doesn’t mean there aren’t barriers to closing right now, outside of any difficulty associated with loan approval. For one, the closing of government offices in some areas is proving to be a challenge. 

“Squirreled away in county buildings, and probably not high on the list of things buyers care about, these offices are nevertheless vital to the buying and refinancing processes, as title searches and deed filings happen inside,” said The New York Times.” A lack of staff doesn’t totally derail business. About 2,100 of the 3,600 offices (in New York) allow electronic filings. But a human being ultimately has to process those filings, known as e-recordings. Without the access to title searches and deed filings those provide, purchases and refinancings may stall. Maybe someone will come up with a workaround — as they are doing for those other issues. But, right now, it’s hard to see how people will be able to close without title searches.”

May the odds be ever in your favor.

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