Let’s say you applied for a loan in March, before the first corona virus case was reported. You and your wife had good income, good credit, and you had been pre-approved for the loan amount you needed to buy the house.
Then the corona virus hit, and everything ground to a halt. Your job was not deemed “essential”, so you had to work from home. Your wife is a nurse, and she’s working more than ever, but she has to sleep in the den to avoid infecting you. Fortunately, you’re both in good health, and your jobs are safe.
How Does the Corona Virus Affect You as a Borrower?
Everything takes longer. Everything. Many businesses are operating with minimal workers because employees are out sick or quarantined. So anything that depends on having a human being do something for you will take longer than before.
For example, let’s say you closed out a bank account and don’t have any of the statements. You can’t access it through online banking because once the account is closed, the statements are no longer available. You need to go to a branch and have them print out the statements. You go to your local bank, but it’s closed. A sign on the door directs you to a branch that’s open. You go there; they’re closed. Due to COVID-19, they have limited hours.
Same thing with documents that have to be notarized. Let’s say you want to close by Power of Attorney. You have the form; you need to have your signature notarized. Try finding a bank near you with a notary on site during these trying times. You have to make an appointment and go to the branch when they’re there.
Not Everything Can be Done via Zoom
In this age of COVID-19, Zoom meetings have become popular as a way to “meet” while maintaining social distancing. But you can’t “Zoom” everything. Like appraisals. An actual person has to come into the house you’re buying. Since COVID-19, many appraisers are not willing to enter a home if there is anyone there.
Is There Any Alternative to a Traditional Appraisal?
Yes – it’s called a “PIW” or “Property Inspection Waiver”. If your automated underwriting findings indicate that a full appraisal is not required, you may be eligible for a Property Inspection Waiver. Certain loan-to-value restrictions may apply.
What If You Don’t Want to Go to Your Closing?
There are several options if you would prefer not to personally attend the closing in this age of social distancing.
The first option is a Power of Attorney. You can designate an individual to sign documents on your behalf. The POA needs to be approved by your lender, and should be specific to the transaction.
You can e-sign your docs. Ask your lender if they allow e-signatures.
Another option is to pre-sign the notarized docs. There are only a few loan documents that need to be notarized, surprisingly. One document is the mortgage (but the note itself does not need to be notarized). Then you can have the balance of the loan package delivered to you and you can sign them without having to spend hours in a room with a lot of people.
Do You Still Qualify?
If you were pre-approved before COVID-19, you may find you are no longer approved. After the pandemic hit, many lenders increased their minimum credit score requirements and/or limited the maximum amount of financing allowed. If you are buying a house, you may be faced with having to come up with a larger down payment.
Can you use unemployment income to qualify?
If you are one of the unfortunate people who have lost their job due to COVID-19, you probably applied for unemployment benefits right away. However, even though you have money coming in from those benefits, you cannot use that income to qualify for a loan.
If you lose your job prior to closing, you will be declined. Some of you might be thinking, “I had a job when I got approved. How will the lender know that I’ve been laid off?” They will find out when they do what’s called a “VVOE” or “Verbal Verification of Employment”. Within 10 days of your scheduled closing date, your lender will contact your employer and verify your employment. If they answer, “he/she is no longer working here”, your lender will rescind your approval.
What Are Your Options If You Lost Your Job?
Talk to your lender. You may be able to add a co-signor to help you qualify. You may be able to postpone your closing while you find another job or get re-hired when the economy improves. Or, worst case, the seller may be willing to take back a mortgage to help you buy the house. If none of these options work, you should be able to get out of the deal and get your down payment back.
What Are Your Options If You’re Self-Employed?
Many self-employed borrowers took advantage of “non-QM” loans or non-qualified mortgages that allowed them to qualify using deposits into their bank accounts to qualify (instead of tax returns or other income docs). But COVID-19 wiped out the Non-QM market.
So if you’re self-employed, what are your options to get a mortgage? You can get a co-signor, or perhaps lower your loan amount to where you qualify. Or the seller could take back a loan.
What Is Forbearance on an Existing Mortgage and Should You Apply for It?
In an attempt to help homeowners who have been hard hit, financially, by COVID-19, the government has offered 90 days forbearance for mortgage payments. But this doesn’t mean you just stop paying your mortgage for 3 months. You have to contact your lender and ask to enter into a forbearance plan. They may require documentation to verify your economic hardship (such as a termination letter from your job and/or your application for unemployment benefits).
Once your lender approves your request, you can then forego your payments, but you still need to make them at some point. Most lenders will tack on the missed payments to the end of your loan.
If You Enter into a Forbearance Plan, Does That Affect Your Credit?
Ask your lender how they will report your payments on your credit report. Ideally, your payments will not be reported as being late but as being in accordance with a bank-approved forbearance agreement.