Tightening Guidelines and Great Rates – The SplitReady Divorce Mortgage Pro Market Update for April 2020

The Spring season is beginning, and loan applications are still cranking along.  That said, the lending environment is radically different from what we have seen in a long time, if ever.  I have a lot of clients that were waiting for this time of year to sell their properties, as well as many waiting for the right time to refinance their ex-spouse off of the property.  In these cases, there are also newly single buyers looking to purchase a home.  Under each of these scenarios, there are a lot of things that are unique to this mortgage lending market, some of which that can mean the difference between getting approved and getting declined.

  • There has been some settling in loan approval guidelines, but as the economy deteriorates, they are still tightening.
    • For conventional cash out refinances, 680 is becoming the norm.  SO, if you were planning on refinancing a spouse, you need to be extremely careful not to make any changes that would make the loan a cash out refinance.  Do not do anything before consulting a professional as there are no mulligans.
    • Income and ability to repay are extremely important right now. Expect underwriters to dot every i and cross every t when making a decision on a file. In addition, they will definitely verify that you are still employed and that you are still making the same amount of money.  You will not “slide by” so if something has changed, let your lender know.
  • Rates a still great. 
    • Although not at a low point, they are still extremely low from a historical perspective.
    • Rates for weaker borrowers are worse.  Applicants with worse financial profiles are subject to adjustments for things like lower-FICO scores and higher loan-to-value (the amount you borrower vs the value of the property) and these have gone up.  Simply put, if you have a FICO of 660, you are unlikely to get the best rate offered under the best conditions.
  • Purchases still have some more liberal guidelines, but those are tightening too, just less so. 
    • With programs like FHA, many lenders are creeping to min-FICO of 620. some are going as high as 640.  
    • There are no major changes to VA that I have seen at this point other than a contracting of who can offer them.  Many brokers are temporarily shut out of offering VA loans.
    • Loan targeted at low-to-moderate income borrowers are largely untouched as lenders still need to meet minimum lending requirements in communities targeted for community reinvestment.  Before you jump at the thought of using these, they usually have maximum income limitations
  • Jumbo loan options are contracting. 
    • This is not to say that you cannot find them, but many lenders have pulled back and are only offering through their own sales force, i.e. no brokers, if they are offering them at all. 
    • In all cases, expect stricter requirements and less exceptions.  In some cases, expect to need to have a relationship beyond a mortgage to gain access to the jumbo programs.
  • Portfolio loans are getting tougher to find. 
    • For the uninitiated, portfolio loans are non-conventional, non-government loans that a bank keeps on their balance sheet, i.e. they do not sell them.  These are great programs to get through unique circumstances, like divorce, when Fannie Mae or Freddie Mac’s guidelines will not allow the required flexibility. 
    • In almost every case that I have seen, lenders using their balance sheet are doing so sparingly.  You should expect to need a relationship beyond the mortgage with most, if not all, banks.

So, what does this mean to you?

If you are selling:
  • Be vigilant.  Request a current pre-approval as anything 30 days or older may no longer be valid.
  • Be open to a lower selling price.  There are less qualified buyers every week as the combination of stricter guidelines and increasingly weak financial situations for buyers take their toll.
  • Be engaged with the appraisal process.  The economy is taking a toll on home valuations.  Do not give the appraiser a reason to deduct dollars from your value.  Condition matters, so make sure that you present the best possible condition for your home.
If you are buying:
  • Be proactive.  Make sure that your pre-approval is still valid and, if it is, get an updated copy that is less than 30 days old.
  • Be opportunistic.  If you are still a strong buyer, you may find that you have more negotiating power.  Do not try to ultra low ball with your offer.  We are not at a melt down fire sale point.  You could expect, however, to buy at a reasonable discount especially if the property has been around for a while.
  • Be organized and responsive.  Lenders are very backed up, so anything that you can do to help is essential to avoid delays.  If you get asked for anything respond quickly and completely with everything that you are asked for.
If you are refinancing
  • Be organized and responsive.  This is true with buyers and it is even more important with refinancing homeowners.  Refinances are prioritized behind purchases, so your window of opportunity for a smooth loan process is even smaller.
  • Be reasonable. As I wrote earlier, home values are dropping.  They are not in free fall, but your expectations should match the reality of the market.  Think like a seller when the appraiser does the inspection.  Make sure that you present the best possible condition.

None of this should cause you to panic.  The lending market is fluid and ever-changing.  Right now, the fluidity is more like a rolling boil than a mill pond, but it is manageable with some forethought and planning.  Remember, lenders are adverse to risk, so success or failure in obtaining a loan and meeting your objectives depends on being well informed and well supported.  In unique situations, like divorce, you should definitely get all of the help that you can.  Even if it costs you a little bit extra, the outcome is too important to skimp on the process and mistakes can be catastrophic.

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