According to Mark Mathis, VP of Sales for Homes.com, COVID-19 has had more effects on people and the economy than just what is seen. With the CARES Act, many who lost their jobs used the opportunity to postpone their mortgage payments. This was an option that looked attractive but now we are seeing the ripple effect from this massive amount of debt lenders are carrying.
Interest rates have fallen to the lowest recorded level but many are not able to get a new mortgage or even refinance an existing one. If you are looking to buy a home, here is what you need to know about the current housing market.
It may be harder to get approved for a mortgage or refinance.
Part of this is due to the economic shock caused by the COVID crisis. In this unstable economy, borrowers are at a greater risk of losing their jobs and, as a result, not being able to keep up with their loan payments. Thereby prompting additional caution from lenders.
In addition this is compounded by policies in the CARES Act. As a result of the relief act, borrowers have been able to postpone their mortgage payments for up to a year without proof of financial hardship. This may have been the only option for jobless citizens, the act did not provide a way to cover the missed payments. Because of this many lenders were forced to make up for it and are now placing more restrictions on their requirements for those looking to refinance or take on a mortgage. The result is some lenders now require a credit score of 700 or higher or a 20 percent down payment. At least one lender no longer allows cash out loans and several lenders have suspended new home-equity lines of credit.
What Happens Next
The lack of approved mortgages and refinancing options will likely cause a strong impact on economic recovery. It could slow down other industries as well, such as new construction. In general, it’s likely that it will cause a general lack of spending, since current or potential homeowners will be forced to either continue paying at their current interest rate or save for a larger down payment if they’re looking to buy a home. Expect it to be more challenging for the foreseeable future.