Since mortgage rates plunged as the coronavirus pandemic took hold, lenders have been inundated with applications. Bankrate spoke with Michael Becker, branch manager of Sierra Pacific Mortgage in White Marsh, Maryland, to find out what the mortgage process is like, how consumers can best save money on their monthly mortgage payment and where rates may be headed.
What kind of borrowers are getting the best mortgage rates right now?
Becker: Borrowers with good credit scores are getting good rates. For example, we have a special going currently that improves pricing for anyone with a score over 700.
The lowest rates are on government loans with a 700 plus score — VA, FHA and USDA — because of the explicit government guarantee. Borrowers on these loans get 30-year fixed rates in the high 2 percent range (2.75-2.875 percent now).
Conventional loans can be in the low 3 percent range (3-3.375 percent), if borrowers have a 740 score or higher.
Also, borrowers who qualify for Fannie Mae’s and Freddie Mac’s low and moderate income programs — Home Ready and Home Possible — and who have a 680 score or higher are getting great rates despite putting as little as 3 percent down.
How are you dealing with the massive increase in mortgage applications?
Becker: The best way to deal with this is to take advantage of technology to make the approval process faster and easier. Many loans are now getting property inspection waivers (PIWs), so no appraisal is needed. I try to utilize electronic verification of income and assets that are now available with Fannie and Freddie. If I get a PIW and verify income and assets electronically, then the only thing an underwriter needs is title work, updated insurance and homeowners association docs, and then the loan can be cleared for closing. We can fast-track those loans and get them underwritten in as little as six hours. I closed four loans like this last Friday, and they all of them were originated and locked just two weeks earlier. It took that long for the title to come in.
Where do you see mortgage rates heading in the foreseeable future and why?
Becker: I don’t see rates moving much in the foreseeable future. While there has been a lot of stimulus, both fiscal and monetary, thrown at this crisis, there is going to be some real economic damage done by the lockdowns and shelter-in-place rules. Many businesses will be forced to close permanently. Some won’t reopen after the lockdowns, and others may try to open and struggle if demand does not come back.
Once this stimulus ends, that will be the true test for the economy. Because of this, I think the Fed will do all it can to support low rates moving forward. We are seeing a little of this now. The equity markets have rallied a lot in the last couple months on stimulus, but the bonds haven’t sold off, resulting in higher rates as often happens with an equity rally.
(Becker is among a panel of experts that forecasts changes in mortgage rates each week on Bankrate in our Rate Trend Index.)
What can borrowers with low credit scores do to increase their chances of getting a mortgage with a favorable rate?
Becker: Work on getting their credit scores higher. In many cases, this is easier than people think. Sometimes paying down a small balance on a credit card that has a low credit limit can do a lot to improve your score. Many lenders are requiring at least a 640 score to do a loan. And a loan with that score comes with a big hit to the rate or cost in points. Some programs like government streamline refinances now require a 680 score with many lenders, because income is not verified (but employment is).
If you can’t get your score higher, then having some compensating factors, like low debt ratios, being with your current employer for a long time or having additional assets or reserves can help you get approved with a lower credit score.
What can borrowers do to close as quickly as possible on a loan?
Becker: They can respond to their loan officer’s request for documents as soon as possible. They can also e-sign or electronically sign initial disclosures, as well as the closing disclosure, as soon as they receive them.
Most delays in closing are coming from the borrowers. If you delay getting your loan officer the info they need to get the loan into underwriting, or if you’re slow to e-sign docs, then there will be delays.
Also, be helpful in getting updated timely docs. We are requiring much more timely information. Bank statements used to be allowed to be 60 days old at closing. Now, the most recent bank statement must be dated 30 days within closing. And the verbal verification of employment that is done right before closing can only be three days old at closing — it used to be OK 10 days out. These are my company’s overlays, and not Fannie or Freddie rules, but a lot of lenders are doing things like this to try and make sure they are not closing a loan that is going to go into forbearance, because of a loss of income or lack of assets. Fannie and Freddie will buy loans entering into forbearance, but they charge the lender 500 to 700 basis points to purchase, so as a lender you are guaranteed to lose money on the sale of that loan.
Is there anything else borrowers should be thinking about in the current environment?
Becker: They should be looking into how they can save money. Rates are great and there are many who can save money, lower their payment or shorten the term of their loan.
Also, they should make sure they are secure in their job when they apply. It’s not a good idea to try and close a refinance right before you are scheduled to get furloughed or laid off. I have had loans get approved and cleared to close, only to have the verbal verification of employment show they are no longer working. This effectively kills that refinance or purchase loan.
Featured image by Wolfgang Kaehler/LightRocket via Getty Images.
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