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As with so many other aspects of our lives, the ongoing impact of the COVID 19 virus has had a serious effect on the mortgage world, causing market volatility, and difficulties in underwriting the clients credit risk.
Simply put, lenders have been forced into tightening guidelines to increase protection against defaults from pending disruptions to the economy, job loss, closed businesses, reduced hours, and more.
This has primarily changed weaker loan applications, including VA Loan applications. New higher minimum credit score requirements is the most common item, with most lenders now requiring at least a 640 score for VA loans.
Some programs are completely disappearing. Large jumbo loans, and cash out refinance loans are a prime example. Many lenders have simply stopped offering them, especially cash out refinances as they worry that clients may try to take cash out to live on, knowing they are about to lose their job.
VA streamline refinances (also known as a VA IRRRL loan), which require very little documentation are also harder to get with lenders unable to verify jobs under this program.
For those who are still eligible to get a mortgage loan, they can expect new re-verification of job requirements, and the age of documents at the time of closing can’t be as old as before. For example, maybe the pay stub you supplied was from a month ago. Now lenders will need the most recent one too.
Another big change is many lenders are now also doing a final verbal verification of employment on the day of closing. This is because of the reality that you may have been furloughed yesterday.
Higher interest rates are also common on government loans (VA, FHA, USDA), especially as your credit score drops.
LENDER OVERLAYS
Many of these changes are mandated across the board with all lenders. Others are what is known as lender overlays, and will vary from lender to lender.
Understand that the VA doesn’t give you a loan. A lender does. The lender basically gets a partial insurance policy against loss by the VA if you default, but only if the lender underwrites your loan to follow VA guidelines.
The lender can still be on the hook for a loss above the VA ‘insurance’ – so therefore lenders add their own extra internal rules to the basic guidelines. For example, VA guidelines still say lenders can do low credit score VA loans, but I am not away of a single lender in the nation currently offering them.
RETURN TO NORMAL?
Will we return to normal? I believe so. It is just a matter of when.
The most recent example was the market crash or 2007 / 2008. We saw a big tightening of mortgage programs and guidelines then too. Some things improved fairly quickly, while others took years.
Stay safe people, and always feel free to contact one of our VA mortgage loan expects anytime with your questions at (651) 552-3681, or click here to send a message to ASK AN EXPERT.
We are not acting on behalf of, or under the direction of the VA or the Federal Government. The Veterans Administration does not lend directly to the public, only through approved lending institutions like us here at Cambria Mortgage.
The Department of Veteran Affairs requires mortgage companies who offer VA Loans go through a stringent approval process. We are proud tp a VA approved mortgage lender and are proud to help military families use their VA Loan Benefits.
Equal Housing Lender, Cambria Mortgage NMLS# 322798. Our lending services provided only in the following states: Minnesota, Wisconsin, Iowa, North Dakota, South Dakota, Colorado, and Florida. This is not an offer to lend or to extend credit, nor is this a guaranty of loan approval or commitment to lend. The information here may not be up-to-date and may no longer be accurate. Products and interest rates are subject to change at any time due to changing market conditions. Actual rates available to you may vary based upon a number of factors. Consumers must independently verify the accuracy and currency of available mortgage programs. All loan approvals are subject to the borrower(s) satisfying all underwriting guidelines and loan approval conditions and providing an acceptable property, appraisal and title report. © 1998 - 2024, Joe Metzler, NMLS 274132
