COVID 19 has had a huge impact on the financial security of many households. While much of this impact has been negative, there are sectors of our economy that have not been harmed and are even thriving due to the pandemic. Those who are secure in their employment are seeking security in their housing, so mortgage markets in the United States are quite tight in some regions.
First Time Buyers: Down Payment Assistance
While job losses have been severe, access to down payment assistance remains strong. In addition, those who’ve suffered a job loss can count their unemployment as income in the application process. If someone is interested in buying, they will need to take steps to get this assistance. For example, they can
take a first-time home buyer class apply for a forgivable loan that will be wiped out once they’ve been in the home for the required amount of time apply for grants to help with down payment costs.
Credit Rating Requirements
For a first time home buyer to qualify for a mortgage, the credit rating requirements are not extreme. Most prospective buyers need a credit rating of 620 to qualify. For those with a rating of 580 or above, FHA and USDA loans are still an option. VA loans are also available to those with a credit rating of more than 580.
To get COVID 19 mortgage relief and down payment assistance, those interested in buying their first homes need get pre-approved. The pre-approval process generally calls for a hard pull, or a credit approval process that will be reported to the credit reporting agencies and credit bureaus. However, once the credit rating is known, prospective home buyers can make applications for down payment assistance in a variety of forms.
Work with a Realtor
Buyers need to make sure that they’re working with a real estate agent, preferably as soon as they start looking. COVID 19 mortgage relief programs and down payment assistance programs may be federally mandated, but many of the details are left up to the states. By signing up with a realtor, buyers will have closer access to mortgage lenders and mortgage brokers who can provide first time buyers access to the latest data on state programs.
For example, if your credit rating is 600, you may not be able to get a conventional mortgage. However, if you’re planning to buy outside of a major metropolitan area, you may qualify for a USDA loan. To get a loan with no down payment at all from the USDA, you will need to bring up your credit rating to 640, but there may be flexibility on that requirement depending on the state where you live.
Once you find a realtor, they can help you determine which homes suit your loan requirements. The goal is to match your loan access to the right house so you can enjoy ownership and the chance to build equity.
Things that Haven’t Changed
There are factors in qualifying for a mortgage that haven’t changed much at all. While you can get a grant or a forgivable loan to help you with your down payment, you will still need to present as low a debt to income ratio as possible.
This means to stay liquid. You’ve probably already cut back on your spending, but take another look at your budget to see if you can trim any more. Can you build no-spend days into your week, or can you cut back on meals out? If meals out are already off your radar, can your consolidate errands with trips to work and lower the wear and tear on your vehicle, lower your insurance, or cut back to one car for your household?
The lower your debt to income ratio, the more comfortable the bank will be with you as a risk. If you have anything in your credit history that will cause problems, such as collections or bankruptcies, they may need to be paid off before you can get a mortgage.
Loan to Value
The bigger your down payment, the more equity you will have when you move in. Lenders like borrowers to have equity from the start because borrowers are less likely to default on properties that have a lot of equity. Your lender would rather have you lose equity by selling the house at a loss than to take possession of the property themselves in a foreclosure.
That being said, first time home buyers would be well-served to look for homes that are livable, not project houses. It can be very tempting to start big renovations on the day you move in, but this is not a good idea for several reasons.
You need to watch your budget from day one.
Utility costs are uncertain; you don’t want to run behind on these bills.
You don’t really know what doesn’t work about the current footprint of the house.
Paint if you want and replace flooring if you must, but avoid making big changes until you’ve lived in the house for a year.
Forbearance and Flexibility
If you have a mortgage and need flexibility during tough financial times, carefully review the forbearance rules. These rules can change from lender to lender, and the interest will likely continue to pile up.
Your payments missed won’t be forgiven, and they may be a balloon at the end of the forbearance period. You may also be able to stretch out payments at the end of the forbearance period. Know your repayment requirements before applying for forbearance, as you may be better off doing a long-term refinance to lower your payments than applying for forbearance.
It is still possible to buy a home in spite of COVID 19. You may have to do a lot of things, including meeting with your mortgage broker, on your computer. However, lenders are still eager to get people into homes.