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

Written By: Jaymi Naciri
Friday, May 8, 2020

Heres what you need to know if youre 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 isnt over, and the Fed hasnt raised the benchmark rate. So whats 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 theyre 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 dont 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, its like the Hunger Games out there.nbsp;

All lending institutions are not equalnbsp;

If youre working with a mortgage broker, youll have access to a number of refinancing options and programs. If youre 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 approvedand stay that waynbsp;

The credit score that was good enough to qualify last yearor even last monthmay not be good enough anymore. Thats 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 happensand taking on more risk by lending to lower-credit borrowers? Thats 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 qualifyits 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 theyre 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 lenders 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 dont 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. Thats 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. Thats 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 doesnt mean there arent 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.nbsp;

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May the odds be ever in your favor.