Are you one of the millions who have suffered from temporary layoff / downsizing due to the recent COVID19 outbreak?   The good news is you’re not alone, the bad news it’s happening to many people.  The lenders however are taking a conservative approach to these new economic happenings.

Lenders are tightening up on verifications:

In the past lenders have verified employment within 10 days of closing, but Fannie and Freddie guidelines have now restricted that window to several days before close, often times the day before close.   Because of the massive lay offs they want to ensure the buyer is employed as close to our closing date as possible.

 

Credit score requirements have tightened

Most lenders would go down to a 580 credit score with an FHA loan,  because of the recent news most lenders have upped this requirement to 660 or more.  Some lenders even going as high as 700.

Debt to income ratios

The standard for debt-to-income ratios have been 50% on conventional mortgages and up to 55% on FHA / VA.  This has closed in, some lenders are not taking debt to income ratios more than 45%.

Temporary leaves of absence

Employee leaves are being scrutinized even further, conventional guidelines used to state that an employee who is on maternity leave, sick leave, short term disability leave or other leaves can close as long as their first paycheck when they’re back to work is before the first payment date.  This has changed to all employees must be back to work with no reasonable change in hours or pay.

Cash out rules

Some lenders have instituted that cash out refinances cannot exceed $50,000 in proceeds.  Meaning those expensive home repair projects may have to wait until guidelines loosen up.

 

How Fannie Mae and Freddie Mac work:

 

The Take Away

These guidelines, however inconvenient , are only temporary. Whenever there is a massive downturn in the economy there are adjustments in lending practices.  If you are affected by any of these just hang tight and we will get through it.

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Justin Scott

NMLS 8758581

Executive Mortgage 

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