Getting a loan has been pretty challenging for most borrowers since the financial crisis. It’s gotten even tougher during the COVID-19 pandemic. Borrowers who are applying for loans now are being asked for even more data with expiration dates that are closer to the close of the loan. Here are 3 ways things have changed:

 

Employment status for W2 wage earners is now being checked and double checked as the file makes its way from loan origination to funding. There are new requirements in place which require lenders to make one final check to verify employment just before funding. This can be challenging since so many people in HR are working from home and are not easy to get in touch with. Self-employed borrowers face an even more rigorous level of scrutiny. In addition to having to prove income for the past two years with their tax returns, self employed borrowers are now also being asked for a year-to-date P&L, balance sheet, and proof that the business is functioning on the same level that it was before the pandemic. Underwriters have been asked to judge the level of income, the impact on business operations, and the impact on the overall stability of the business. Self-employed borrowers are also being asked to support the recent business activity with invoices, contracts, and deposits that show that they are still fully functional.

 

One of the big changes made by Fannie Mae and Freddie Mac during the pandemic is a guideline regarding the age of acceptable documentation. Before the pandemic, the maximum age of documents in the file was 120 days. This left enough time to get pre-approved and to purchase a home without having to update too much information. Now the maximum age of documents in the file has been cut to 60 days. This means that bank statements, asset statements and other documents in the file need to be continuously updated throughout the transaction. This could lead to fatigue and frustration as borrowers are asked for what seems like the same information over and over again.

 

With forbearance being offered to just about all homeowners under the CARES Act, many homeowners took advantage of the opportunity to lower their monthly payments during the pandemic. While the CARES Act forbearance offering is designed to not have any impact on borrowers’ credit scores, it does make them ineligible for financing. Most lending guidelines do not allow borrowers in forbearance to obtain financing for purchase or refinance. This means that millions of homeowners have unwittingly made themselves ineligible to take advantage of record low interest rates. There are two ways that borrowers in forbearance can make themselves eligible for financing again. The first is to come out of forbearance and to make at least six regular monthly payments. The second is to come out of forbearance and to immediately repay all missed payments and to come current. Once current, borrowers will once again be eligible for financing.

 

It has certainly become more challenging to get a loan in 2020. The best thing that borrowers can do is to align themselves with a mortgage professional who knows the landscape and who can guide them through the maze of modern lending.

 

 

VP, Mortgage Advisor

 

CrossCountry Mortgage LLC

 

(415) 377-1147 | [email protected] | fmzteam

 

2987 College Ave, Berkeley, CA 94705

 

Personal NMLS342090 | Branch NMLS2020284 | Company NMLS3029