Guideline Changes Ahead for Home Loans

Riverbank Finance LLC is an experienced mortgage brokerage that has an extensive list of lending partners offering a wide variety of financing.  We work hard to provide the best options for home loans at low rates and costs. Our lender lineup also covers most programs for cream of the crop, large down payment borrowers to lower credit score, low down payment borrowers.

As the world is at war with the Coronavirus (COVID-19), lending guidelines have changed quickly for all lenders. Due to economic slowdowns, layoffs and companies closing doors, lenders have been forced to add additional restrictions, suspend loan programs and add extra steps for verifications for borrowers.

These changes are industry wide with far reaching changes. Just know that if you are affected by lending restrictions, you are not alone. While these changes may be temporary as we fight the effects of the Coronavirus, they are real and have happened suddenly without notice.

Important Lending Change Summary:

  • Government Loans Raised Minimum Scores to 620+
  • Larger Down Payments Required for Jumbo Loans
  • Rental Income may not be used for qualifying
  • Maximum Debt to Income (DTI) Ratios Lowered
  • Age of Documentation Changed
  • Self Employed Income Reduced

Government Loan Changes Due to Coronavirus

Some of the hardest hit programs have been the government backed loans including FHA Loans, VA Loans and USDA Loans. These loan options are backed by the government to encourage lenders to offer low rates and low down payment options to homebuyers. Program guidelines are generally more flexible for those with imperfect credit or unique circumstances.

With the extra risks of payment defaults, nearly every lender in America has increased minimum credit scores to at least a 620 (Many are 660+). Lenders made these changes nearly overnight as the secondary mortgage market lost buyers for lower credit score lending.

Non-QM and Portfolio Loan Changes Due to Coronavirus

Non-QM loans, sometimes termed portfolio loans, are mortgage loans that do not fit the tight requirements of Conventional Agency Loans offered through Fannie Mae and Freddie Mac. Non-QM loan options include Non Warrantable Condo Loans, Bank Statement Loans, Investor Cash Flow Loans, Low Credit Score Loans, Land Loans, Asset Qualifying Loans and Foreign National Loans.

Due to the risk of payment defaults, portfolio loan options have nearly all been discontinued or only offered at low loan to value (LTV) ratios. Many Non-QM lenders have temporarily suspended all lending until the financial markets stabilize.

Jumbo Loan Changes Due to Coronavirus

Jumbo loans have been another casualty of the Coronavirus. Jumbo loans are mortgage loans above the conforming loan limits currently set at $510,400 or higher in some high costs areas.

Because Jumbo loans are above the conforming loan limit for agency loans, jumbo loans are considered portfolio loans. Just as other Non-QM loans have been suspended, many jumbo loan requirements have changed including lower loan to value maximums, lower debt to income requirements and larger down payments.

Self Employment Income

Self Employed borrowers will see additional restrictions on their income. Because self employed borrowers use historic information to qualify, lenders are beginning to reduce qualifying income by 25% to anticipate a decline in income from 2019 due to the economic slow down.

Additionally, self employed borrowers will need to verify that their business is still open and current profits are in line with previous years.

Rental Property Income

Many landlords depend on cash flow income from rental properties to qualify for financing. With many workers being laid off or let go from their jobs, many will be unable to pay rent.

For landlords, many lenders are starting to exclude rental income to offset current obligations or count as additional income. Some lenders may allow income if the borrower has 6 or 12 months in reserves.

Qualifying Guidelines Tightening

Overall, many lenders have tightened mortgage guidelines to add restrictions and overlays which may allow less people to qualify. Generally speaking, most programs now limit debt to income ratios, require more cash in the bank and require higher credit scores.

If you are in the process of obtaining a mortgage, or pre-approved to buy a home, we strongly encourage you to contact your loan officer to review any loan changes that could affect your approval.

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